ithout capital, there is little hope for a company that is first starting out and going to market — nothing is more important for startups than getting the fuel they need to blast off. The good news is that there are more ways to do this now than ever before. The introduction of crowdfunding sites, such as GoFundMe and Kickstarter, gave small businesses a landline to connect their goods and services directly to interested customers.

However, for some high-end startups and other emerging businesses, this method of funding might not provide the best of foundations.  For companies in search of the illusive, multi-million dollar checks, there’s only one place to go: venture capital (VC) firms. These enterprises help finance early stage startups by pooling investment dollars from other investment companies and pension funds and investing them in businesses they think will be profitable. These pools contain enough capital to write that check you’ve been dreaming about. But how can you convince these VCs to invest?  

The trick is knowing how to get your foot in the door. However, it can take a lot of hard work to even make one of these meetings happen, and convincing a room full of investors that they should fund your product can seem impossible.  Unlike the allure of crowdfunding sites, through which businesses can actively develop and establish their own forms of community, VCs prefer investing in companies that are “ready to roll” and require very little babysitting. Essentially, they’ll be looking for a company already close to having a product, so make sure you have thought that far ahead before a firm agrees to meet with you.  

It is interesting how similar these discussions can be to the ways companies already advertise their products; the customer becomes the de facto indicator of success. There is no better way for startups to emphasize the strengths of their own company than by showing the positive impacts their business is making on its consumers. Here are some questions to consider when explaining this:  

  • Why would a customer buy this product over a competitor’s?
  • Is it worth the price?
  • Is it worth talking about?
  • Is there an app for that?
  • Why would a customer want to invest in your company?

The answers to these questions are anything but generic: these are not only means of various market disruptions, but also channels that can bring in future revenue and interest to your company. By focusing on the customer like this, you are also branding your company in ways that venture capitalists look for.  

Furthermore, in terms of avoiding generalities when meeting with a VC firm, it’s important to tailor your pitches and avoid “in-bulk” communication. These venture capitalists have the funding to carry your company through to its last stages before going public, so understand the “lifeline” which these investors can provide and work to strengthen a bond with them, rather than a dependency.  Be proactive. Use the stakes of a VC partner meeting to get to know every facet of your company. Do your research on the firms you are propositioning to. The National Venture Capital Association website is especially useful for this. It offers general information on venture capital and advice in a variety of forms. It also lets you search for local or industry-specific leads, so that you can pair your startup with like-minded professionals.  

Nevertheless, there’s no better way to win investors over than getting to know them personally. This is where networking either rears its ugly head or gets you through the door without any hurdles. Because these firms are fielding emails from thousands of potential businesses, it is incredibly easy to slip through the cracks and go unnoticed; knowing the right people tends to make this a less time-consuming endeavor and hastens the end result of meeting with the right people in person.  Things get really serious when you’re invited to a firm’s partner meeting. As difficult as these meetings can be, this is the place where the magic happens! With the right pitch, team, and product, you can win over the investors and attract the funding your startup needs.  

Of course, everything we’ve covered in this article boils down to instilling a sense of security in the VC firm. They are the ones shouldering most of the risk; financially supporting your company as they do, they will be expecting high returns. This is the key factor they look for when selecting companies and this hinges on how well they think your product will do with consumers.  The fact remains, however, that this is all easier said than done. According to Forbes, VCs reject almost 99% of their proposals, making rejection as routine as your walk out the door. But this is no death sentence; remember that you’re shooting for the stars when you’re proposing to these firms, so be patient, be persistent, and make it happen!

October 26, 2018
Banking 101