You’ve left your corporate job, answered some key questions, and decided to make the startup leap. Now it’s time to raise some cash to help fertilize the seeds of your idea. But before you go pitch investors, how should you prepare and what should you be thinking about before the big meeting?
A trio of venture capitalists gathered for a panel discussion Friday at Seattle Startup Week and shared advice for budding entrepreneurs that want to raise capital for their companies. Here are three quick tips that can help increase your chances of getting a check.
Do your homework
This one might seem simple, but it can save you — and the investors — a lot of time. Be sure to read the firm’s website and understand what type of companies they like to invest in, and what stage. Some early-stage investors want to back companies that are barely off the ground, while others like to see more traction.
Study up on the managing directors and their backgrounds; make sure to analyze the firm’s portfolio and see if there any competing businesses.
Elisa La Cava, senior associate at Madrona Venture Group, pointed out the firm’s four investment themes for 2019.
“One reason we declare those themes is that they are the specialities and expertise of our group,” she said. “We have a community of people that can help you build those kinds of businesses.”
Aviel Ginzburg, general partner at Founders’ Co-op, noted the 24 questions on his site that entrepreneurs can answer as an application of sorts.
“Based off how you go through that, we can really quickly figure out if we are going to waste your time; if you’re going to waste our time; and most importantly, when we meet together, can we make the most of it,” he said. “It’s something that should be valuable for you no matter what, because it forces you to think about what those questions will look like.”
It’s not just about the deck
“Be a real human,” La Cava said at one point, referencing “really weird emails” that she sometimes receives.
On that note, Ginzburg said the word “pitch” can be problematic.
“The worst meetings are the ones where I feel like I’m getting sold something,” he said.
While it’s important for investors to know that an entrepreneur is serious about an idea and has done their research, Ginzburg noted that “this is a very long-term emotional relationship we’re talking about.”
“Yes, you have to get the investor interested [in the idea], but especially at the early stage, you’re getting them interested in you and your process,” he said. “It’s not about your kickass financial model or your awesome deck with amazing visuals — it’s you.”
Make sure VC is right for you
Not every startup should seek funding from VC firms that are often looking for giant returns from scalable companies. “The tool of venture capital is so specific to a tiny, tiny fraction of companies. We can’t let ourselves be fooled into thinking that’s the story of the future of American entrepreneurship,” Portland, Ore.-based entrepreneur Mara Zepeda, co-founder of VC counter-culture group Zebras Unite, told The New York Times earlier this year.
Cameron Borumand, a principal at Bellevue, Wash.-based Ignition Partners, said it’s important to ask yourself if an alternative form of funding is more appropriate.
“Confusing VC fundraising with success is an epidemic right now,” he said. “Building a business that’s the best type of business for you in the culture you’re creating, versus chasing VC dollars, is something to keep in the back of your head.”
That being said, if you are looking to build a venture-scale company, think big, Borumand advised. You might be focused on the next year and how to get to $20 million in annual revenue, but you should be thinking about how to get to a $1 billion valuation.
“Take a step back and think about Act 2 and Act 3 of the business,” he said. “That’s what will get the investor excited.”