Here is the last part of my article series (tips 7 to 10) on what I have learned about looking for venture capital for a start-up:
7. Be open to different deals
You might have a straightforward deal in mind: x% of the company in return for X amount of investment.
Think again, especially for smaller companies, the deals can be structured in different ways. You might have to give more equity than you thought or let the investor appoint one of its “representatives” inside, not just on the board.
It might be that they want to impose their own Financial Director for example, or a COO. This might not have been what you expected, but before rejecting any offers outright, think about it: maybe the new person is worth it? Maybe it’s someone with experience your company is lacking of?
Understand that, especially for young companies, the VC will want to minimise their risk. A good way for them is to ask for a larger share of the company, but with a “clawback” scheme, where the VC gives you some equity back as you hit pre-defined milestones based on the results of the company (EBITDA, gross profit or other measures). Those schemes can be interesting as they will prove your motivation and belief in hitting targets to investors, and they will minimise the risks to the investors.
8. Can the Investor bring you more than just funding?
If you’re looking to get investment funding, it’s very likely that the thing you need most is money, but what more can an investor bring you?
When considering an offer, also look at the other things that an investor can bring you:
– do they have other companies in their portfolio that they can help you do business with as a client? A provider? A sales and marketing partner? Do they have a network that can help you achieve your goals?
Those “extras” can be as important as money and can help your success greatly, so don’t forget to put a value on those connections when considering a deal.
9. Prepare for a long slog
Securing an investment can be a long process, and the more money you’re asking, the longest this process will be.
If you’re looking to raise a few tens of thousands from an angel investor, the deal can be agreed and completed pretty quickly, but if you’re looking to raise a in the upper hundreds of thousands or millions from a VC firm, then to complete the deal can take a while! I don’t say that it is always the case, large deals ar sometimes been completed quickly but there’s a definite possibility that it will take long, so be aware of it!
Between starting your search, various presentation meetings to different people, internal discussions at the VC, discussions inside your company to mak decisions, negotiations, term sheet, getting lawyers to check the deal, due diligence, signature of the deal and release of the money… Things can take a very long time, so be aware of it and don’t think a deal is dead because it’s not going as quickly as you want!
10. Don’t be scared to walk away from a deal!
Getting an offer from an investor is not the Holy Grail, and you should not be scared to reject an offer and move on if you’re not happy and comfortable with it!
As an entrepreneur, you spend your days and nights thinking about your business, and getting investment shouldn’t be done at any costs as it has too much impact on you and your company. A good offer is one that works for everyone. If it’s not right for you, then it’s not good for the investor either. An investor wants you to be happy with the deal because they want you to be… MOTIVATED. If you don’t like the deal but still take it, you won’t be committed 100%, and your company won’t succeed as well, which is not good for you or your investor.
It’s really ok to reject a deal and it doesn’t mean that it won’t be possible to make another deal with the same investor at a different stage of the company!
Most importantly and finally, don’t give up if you’re struggling to find funding. Many companies have been very successful without ever taking a penny of external funding! Do you really need to grow quickly? Can you not go slowly and steadily, self-funding your growth and keep complte control of your company? I don’t have any definitive answers for you, it depends on your company’s situation, and no one knows it better than yourself.
Don’t hesitate to leave any comments with any thoughts or questions!