When your company is growing like crazy and you need additional funding to continue your growth pattern, you may consider raising capital from venture capitalists. Typically when people hear the term venture capital they think of Silicon Valley and the big names associated with the most successful such as Andreesen Horowitz, Sequoia Capital, and others. However, the venture capital community is actually much bigger than most people realize.
Before we dive into the tips that will help you land that venture capital funding, make sure that venture capital is the best path for you and your company. Venture capital is not the best option for everyone, so carefully weigh your options before setting out on this path. For more information about which type of funding is best for your business check out our article on the subject (coming soon.)
1. Do your Research
Founders all believe that their companies are amazing and deserve an investment. Although many may deserve that investment, they may or may not qualify for an investment from a VC today. It is important to understand the stage that your business is in and the potential investors which may include an angel investor that typically makes an investment between $10,000 to $100,000; to a middle stage VC investor; to a late stage VC investor which is seeking a multi-million dollar investment. There are investors for each stage of a company's growth. It is critical for a company to understand how an investor makes a return on their investment, the expected timeframe of that return, the expectations of an investor in exchange for that investment, term sheets, due diligence, the funding process, etc. This is not a simple process.
2. Get your Affairs in order
An investor will be looking "under the hood" and "kicking the tires". All company records should be reviewed to ensure they are complete, on-hand and meet investor-level expectations. This includes legal documents, client contracts, marketing plans, product overviews, sales pipeline, organizational and infrastructure information.
3. Sharpen up your Financials
An investor will require historical information as well as future projections. They will have a keen eye on cash burn for the company and the expected use of their investment dollars. For starters they will require review of the P&L, revenue by product and revenue mix, expenses by category, guidance to understand the revenue model as well as guidance on fixed vs. variable expenses as revenue grows, cost of customer acquisition, client concentration, client retention, current credit facilities, balance sheet and cashflow statements. They will require the preparation of all related documents and will require many in excel format for their own modeling and valuation purposes.
4. Craft a Story
Your story needs to be appealing. You need to refine your story and clearly explain how the company was started, where it has come from and where it is going. The investor needs to understand and "buy into" your vision. They need to understand the future market potential and the actions which you will take to capture that potential. They need to understand what their investment is going to be used for. Let the passion you have for your business show in your story and presentation. You are going to need a presentation which is a teaser pitch as well as a detailed presentation with all necessary documentation and support.
5. Perfect your Pitch
Make your presentation compelling and complete. Practice is important. This is an important stage in your companies future and you need to demonstrate you are prepared. You get very few opportunities to make a great impression.
6. Build Relationships
An investor needs to get excited about your company. You should be seeking a potential investor that specializes in your industry or field. You will need to pitch your company to multiple potential investors and should never rely on dealing with one investment source. You need to contact enough investors to ensure probability of a successful funding raise. Remember that your goal is to find the best possible transaction for your company with a partner who supports your goals. In building relationships, research the background of the investors you are speaking with and never hesitate to request information on their past investments and ask for references. Many companies make poor choices in an investment partnership.
7. Execute and always have a Backup Plan
Once your research is complete, your affairs are in order, company financials are sharpened, your story is crafted, your pitch is perfected, and you have started to build relationships; it is now time to execute in this process and hopefully close your round of funding. It is wise to always have a backup plan which may include debt lines, bridge loans or a plan to reduce the cash burn.
By following these steps, your chances of landing that next round of venture capital will be much higher. If you read any of these tips and felt overwhelmed or uncertain don't worry because we have your back. Alpha Partners has extensive experience in each of these crucial steps in the fundraising process. So if you're looking to raise that next round of funding, reach out to us today!