10 KEYS TO RAISING VENTURE CAPITAL
1.BE AWARE OF THE COMPETITIVE LANDSCAPE
It’s one thing to understand the competitive landscape. It’s entirely different to understand exactly how your company’s technology differs from your competitors’. Sophisticated investors will know about your competition and their technology. It’s crucial to understand what your future competition looks like (something that could make your company obsolete).
2.UNDERSTAND YOUR COSTS – (SCIENTIFIC, LEGAL, INTEGRATION, ETC.) –HAVE IT BROKEN DOWN AND BE ABLE TO JUSTIFY THEM
Financiers want to know where your costs are going and why. You should have a detailed explanation of the costs and they should be properly staged. Make sure you choose the conservative approach and leave some space for higher costs that are not planned.
3.KNOW YOUR AUDIENCE
When pinpointing potential investors, whether it’s private or a venture capitalist, make sure you research the individual and company. When approaching an organization, read each person’s profile carefully and approach the person directly in your space. Understand the nuances of how the organization or person invests. Read articles and interviews where the investor has expressed his viewpoints on investing.
4.UNDERSTAND WHO ARE THE INFLUENCERS IN YOUR MARKET AND GET THEM ON YOUR SIDE
Search out key scientists, doctors, and inventors who have developed similar technologies. Find out if they sit on boards of venture capitalists. Find a way to bring them on to your advisory board. They are key influencers with the financial community.
5.UNDERSTAND YOUR MARKETING COSTS
A lot of businesses fail because they try to build their own sales teams or try to build their own brand. Explore all options of marketing. Stick to what you’re good at and don’t try to market your own business internally unless you have enough capital and a qualified team. Investors will dig in on your marketing costs and the experience of your team.
6.BUILD VALUABLE STRATEGIC PARTNERSHIPS AND JOINT VENTURES BEFORE SEEKING CAPITAL
Spend the time creating joint ventures and strategic partnerships before you raise capital (if it makes sense). The more valuable the strategic partnership/JV the more the company will be worth. You will be able to hold on to more equity and the valuation of the company will be higher. Valuable strategic partnerships/JVs can be deciding factors on whether financiers will invest in your company.
7.LISTEN VERY CAREFULLY TO WHAT THE MONEY IS SAYING
Every call matters, even if it’s a pass. Listen to what issues the investors are bringing up and spend time adding these new elements into your company. All investors are different and have their own opinions. When multiple investors bring up the same ideas, these are the issues that need work.
8.KNOW YOUR PITCH AND BE ABLE TO DO IT IN THIRTY MINUTES OR LESS.
Rehearse the pitch multiple times and cut out all unnecessary explanations. Make it concise. Most financiers will not spend more than thirty minutes on the phone. Some will spend a longer period of time if they are very seriously interested in the project. Research what kind of audience you are pitching to beforehand. Do they have a science or medical background? Are they more business oriented? Gear your pitch to the background of the person.
9.UNDERSTAND THE DIFFERENCE BETWEEN MANAGEMENT THAT IS GOOD AT MANAGING THE BUSINESS AND WHO IS GOOD AT VENTURE CAPITAL
Raising capital is difficult and requires a specific type of person. They have to be charismatic and not bore the audience. They have to understand details and know how to explain them with concise answers. If there is a lot of science and technology involved, they should understand that element of the business. If the CEO or founder is a better manager, then he should be accompanied on the pitch with another team member who is good at pitching. Understand the strengths of each person in the company. Ego can destroy potential deals.
10.KEEP YOUR VALUATION REASONABLE
The biggest mistake is seeking an unreasonable valuation. A lot of entrepreneurs/founders like to set the valuation high and then lower it. Setting it a little higher is okay. However, setting the valuation extremely high is interpreted by financiers that you are inexperienced and are unaware of the realities of launching a company. Remember, knowledgeable investors have heard it all before and are very suspicious of entrepreneurs who ask for unreasonable valuations. It ruins any chance of going back to them again. Be reasonable.