Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more
3 Tips to Raise Your Next Funding Round, According to Research
Landing an in-person meeting with a venture capitalist is the first tangible step in an entrepreneur’s very long and laborious quest to secure funding. There are only so many hours in a venture capitalist’s day. They can’t help but be selective. According to Scale Venture’s Stacey Bishop, of the approximately 1,000 pitches that she receives each year from entrepreneurs, only about 50% result in in-person meetings.
Here are three tips to help ensure you make the cut:
1. Perform Due Diligence
Venture capitalists typically concentrate their investments in a handful of industries. There’s a strong relationship between a venture capitalist’s degree of specialization and his/her success. No matter how compelling your value proposition is or how impressive your team’s credentials are, if your offering doesn’t align with a venture capitalist’s investment thesis, you’re not going to get your foot in the door.
Research the investment portfolios of the venture capitalists you are considering. The devil is in the details. Don’t look merely at how many companies the prospect has invested in or which industry sectors he/she has invested in. Look at what stage of development they tend to favor (e.g., early, medium, or late), as well as how much capital has been deployed to date.
In addition to examining prospective venture capitalists’ portfolios, look objectively at other indications of interest in particular sectors or industries. Most venture capitalists maintain an active blog and/or a Twitter account. Look for any and all outward signs of a vested interest in your space.
Finally, gauge the venture capitalist’s reputation. Does he/she have a proven track record of success? Reach out to portfolio companies. How supportive has the venture capitalist been? Are there tales of second-round financing that raise red flags?
2. Find The Right Connection
Once you’ve honed in on the “right” venture capitalist(s), it’s time to develop a strategy. In the fundraising world, warm introductions and referrals are king. A study by Savca found that approximately 90% of funding is initiated via introductions from personal networks.
With so many potential opportunities knocking at their doorsteps, venture capitalists rely on their networks to perform first-round vetting for them. When they hear of an entrepreneur via a close connection, they often are more inclined to trust that individual as compared to when they hear about it cold.
Tools such as Affinity can help you pinpoint the people in your network who can best connect you with venture capitalists. This is a surefire way to increase your odds of getting a warm referral. Affinity not only maps out your entire team’s relationship graph, but also allows you to connect to advisors and mentors to see if they can offer an intro or referral to a VC.
3. Provide Carefully Crafted Content
Once you’ve zeroed in on the best person to make an introduction, the onus is on you to easily facilitate it. Make your referrer’s job easy. You need to arm them with compelling content that will resonate with the venture capitalist.
Content needs to convey the merits and unique attributes of your venture. Not only will this increase the likelihood that your target venture capitalist will take a second look at your business, it will also add credibility to the individual making the introduction.
Resist the temptation to merely email a business plan. Venture capitalists pay little or no heed to the content of business plans. Instead, draft a succinct paragraph that describes your business that the referrer can easily forward to the investor. Focus on explaining why the venture is personally meaningful to you.
According to Fortune, every venture capitalist wants to hear the following phrase: “Here’s why my company’s product or service is personally important to me.” Have you lived the pain point before? Was the idea born out of or inspired by a personal experience? Y Combinator’s Sam Altman explains, “Conveying your passion for the business is almost as important as what you say, and it’s almost impossible to fake.”
The process of securing funding from a venture capital firm is a huge feat. According to Harvard Business Review, the number of US startups funded by venture capital is less than 1%. Securing a meeting with a venture capitalist is the first step! By following the tips outlined above, you’ll maximize your chances of standing out from the noise and getting your foot in the door.