A few years back, a start-up I co-founded decided to go out and look for external investment in order to fund the growth of the business.
As Marketing Director, one of my tasks was to act as lead and main contact for this search. The company was lucky enough to have another co-founder and CEO experienced in the process, having successfully secured venture capital funding twice in the past for other start-ups she founded.
Securing external funding for a company is not an easy task: it’s time consuming and calls for many different skills: planning, strategy, marketing, presentation, finance, negotiation skills, and more. During our search, I developed a good understanding of the process and have learned a lot. I would share with you the “secret” to raising venture capital, but there is none! A combination of various skills and timing is what it takes.
I have decided to put together a list of 10 top tips I have learned that I hope will help you when you are looking for venture capital. Here are the first 3, and I will be publishing the remainings in future posts.
Please don’t hesitate to share your thoughts in the comments. I’m very keen to exchange and learn with you!
1. Do your homework first
There are various types of investment for a business, the main ones are:
- “love money”: your friends and family;
- business angels: wealthy individuals who tend to invest in very early stage ventures;
- Venture Capital funds (VC): generally funds investing early in small, early stage deals;
- Private Equity funds (PE): bigger funds that focus later stage deals, hedge and buyouts.
I won’t discuss the benefits and specificity of each type of investors (note to myself: would be a good idea for a future post!), but you need to understand that each type of investor focuses on different deals; and you need to find the ones that corresponds the most to your situation and what they can bring you. There is some overlap between those types of investors, so don’t discard a type too easily, but know your main targets.
Most investors also tend to focus on certain industries and sectors that they understand and have experience in, and they also tend to focus on deals with a minimum value and companies at specific stages of their life cycle. A minimum of research on the internet will tell you what these exactly are. Once again, even if you think that you don’t exactly fit their criteria doesn’t mean that you should not contact them at all, but you need to be aware of what these are.
According to your country, you will find plenty of online and offline resources that will help you identify investors and contact them: direct internet search, look through industry magazines to see which companies got funding from whom, industry bodies (your industry or the VC industry like the BVCA in the UK), Angel Investor networks (there are many like the Angel Investment Network in the UK or Angel List in the US…) and more.
Investment brokers can also help you look for investors, they will obviously cost you (in cash, shares or a mix of both) but their extended network, expertise and knowledge of the investment market can make them a good option too.
2. Don’t just turn up with “a great idea”
Don’t just contact an investor with “an idea” (with the exception of “love money” maybe). Ideas are great and a lot of people have many good ones, but ideas are not worth anything unless they are implemented!
Investors will not back you up because they like you and think you have a good idea, they will invest because you show them that you have the capacity to act on your idea, implement it successfully and you can make some money!
When looking for an investor, have a business running, even if on a shoe string. You will show them that you are motivated, can implement, have put your own money on the line already (hence that you really believe in your idea and have staked your own cash on it) and have clients to prove that your business idea works.
About ideas, you don’t also need to have a new and innovative idea to start a business and get funding; you just need to prove that you can execute on your idea and make it profitable enough.
3. Keep your first presentation SHORT
When making initial contact, keep it short. Investors receive hundreds of investment opportunities a day, shortlist few of them for further investigation, and end up investing in even less. If your first e-mail to them is a 100-page long business plan, they won’t even read it!
My advice: a short e-mail with a quick introduction of the opportunity, saying in a few lines what your business does, at what stage you are at, the size of the market you’re in and the opportunity for the investor.
To this e-mail, join a short Word document (1 page max!) or Power Point presentation (no more than 10 slides with the following info:
- what does your company do
- what is the opportunity in the market
- what has the company achieved to date
- a short bio of the management in place
- why you need the money and how much
Include numbers to back up your arguments, but do not get into too many details. This is a first contact to pick the interest of the investors and get them to ask for more information or secure an initial meeting with them (phone or face to face) to present your opportunity in more detail.
Let me know your thoughts and I’ll be back in a few days with more tips I have learned about looking for VC funding.
The first three tips were: