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!

Here is the following of last week’s list of top tips for entrepreneurs looking for venture capital. The rest will follow in a final post later this week.

Don’t hesitate to let me know if you agree, disagree or have any questions in the comments!

The first three tips were:

1. Do your homework first
2. Don’t just turn up with “a great idea”
3. Keep your first presentation short

Now for the next tips:

4. Ask for more money than you think you need

If you’re going to find investment, you have (well, I hope you have!) asserted how much money you need to raise to fund your plans.
When pitching to a VC, you should always ask for more money than what your calculations call for. You need to include some head room, as the best laid plans are always plans, and more than often, unexpected expenses turn up.

You are more likely to secure funding if you have built in headroom in what you’re asking, investors will be more confident in your ability to be a good partner if you prove that you understand risk management. I have heard that straight from the mouth of the partners of venture capital firms, who were very happy to see that we did build a 20-30% extra in what we thought needed to fund our plans.

5. Investors don’t just invest in future plans, they invest in people.

Investors want to know about your business, about your plans, but they first of all invest in people, and only then in your business plan.

Plans are just, well… plans. They will change and evolve with time, and that’s normal!

Most investors want to help fund your growth, but they don’t want to take operational control and run your business for you. Its not their job. They don’t want to know in details how you’re going to make something happen, they want you to convince them that you are the person to make things happen.

A good plan is important, it shows you’re thinking things through, that you’re not just moving in the dark on cheap assumptions; and without this, you won’t secure an investment. But your plan will change; and your capacity to adapt and react, to dodge curve-balls, to grab opportunities is what will make your company work. That’s what investors want to see in you to back you up.

6. Don’t be scared of previous failures

You might think that investors only back up entrepreneurs with a successful track record? Well, think again.

Of course, a track record of launching successful businesses is very positive and will be highly valued, but having previously failed at launching companies will not be seen as a negative if you can show that you have learned form it! To directly quote a venture capitalist I met: “I’m more than happy to invest in someone who has failed 2 or 3 times. Actually, I’m probably more likely to invest in someone like this because the way I see it: they have made their mistakes and won’t make them again!”

Never forget that most successful entrepreneurs have failed several times before making it, and that failures will not be seen as detrimental by investors as long as you can show that you have leaned and understood the reasons of those failures.

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.