There is no secret formula to securing vasts sums of money from venture capitalists (VC). Sometimes it is surprising which startups receive impressive infusions of cash and subsequently skyrocket to success and which ones fail to take off or eventually falter. Even though there is not one perfect way to go about the fundraising process, here are a few tips on what to do and what not to do:
Do Your Research
Sometimes startups are so desperate to get the cash they need that they approach any and every VC that will give them some time. However, no matter how much a company needs funds, it isn’t wise to take money from just anywhere. Obviously, investors vet the companies in which they are contemplating making an investment, and startups should vet the investors that show interest in them. There is no sum of money that can overcome a partnership that just isn’t the right fit.
It is best to do research in advance and only reach out to potential VCs whose vision, goals, and background are congruent with your company. And, when making initial contact, make it clear why you are interested in the particular VC and highlight why you think they are a good match for your enterprise.
Don’t Be Afraid to Utilize Your Network
Leaders are often hesitant to ask their friends and colleagues for favors or introductions to their connections for fear of asking too much or seeming like they are taking unfair advantage. These days, however, exploiting one’s network is both necessary and recommended. Of course, there is an art to capitalizing on such opportunities, and as mentioned above, such connections should only be made with parties and firms that make sense, not just any random investment bank.
Do An Actual Pitch, Practice It, and Kill It Every Time It Is Presented
People have an innate tendency to procrastinate and more often than not end up winging it during important events or meetings. This may work for regular, day-to-day matters, but it simply won’t suffice when it comes to pitching VCs and asking for millions of dollars. Startups have to court potential investors to secure funding, and doing so requires intense preparation and practice.
Thus, companies must craft an actual pitch, polish it, practice it until it is perfect, and consistently deliver in a way that inspires VCs to want to learn more about your company.
Don’t Fudge Numbers
Clearly, startups have to put together a budget, financial statements, and realistic projections. Any investor will want to see a company’s existing financial stance, as well as where the company is likely to go money-wise. It may be tempting to dream big and present the best case scenario, but it is best to be practical and convey the most likely financial reality.
After all, investors have a right to know what they are putting their money into, and startups that are forthcoming and transparent are far more likely to attract the right partners.
Do Everyone a Favor and Organize Important Information
Prior to reaching out to any VCs, companies must ensure that all of their organizational, legal, accounting, and other pertinent documents are in order. No one wants to invest in a disorganized company, and hastily trying to create or find items at the last minute will definitely deter anyone interested.
One of the easiest ways to prepare before approaching investors is to create a virtual deal room where all relevant company information can be safely stored. Then, once everything has been created, uploaded, and properly filed, companies can begin to connect with VCs and will have a repository from which they can locate and share any information that has been requested.
Don’t Be Overly Aggressive or Insincere
As we mentioned, it is important to have a pitch ready, and it is necessary and acceptable to make cold calls, ask for third parties to make introductions, and consistently follow up with any leads. However, there is a fine line between being proactive and eager and aggressive and insincere. The art of dealmaking isn’t exactly a skill that is easy to teach or learn, but using common sense, relying on instinct, taking time to think about what you are saying and doing, and considering how you would want to be approached will certainly help.