In the startup world, you overhear stories of pitches gone wrong to awry investment rounds from all quarters. Unprepared startup founders stalk down investors with half-baked ideas and preposterous claims, spaced-out investors offer little to no advice, and pitches sink to the bottom of the abyss called ‘spam mail’. In all this, the common disposition is a “lack of preparation” on both ends.
Approaching a venture capital firm or investor is like running a marathon (to be specific, a cross-country one). You can’t just get off your couch and giddy-up at the starting line; to simplify it, you will fail and embarrass yourself in the process. The only way to avoid the heartburn is to prepare, and here is a crash course on the marathon you need to run for venture funding.
Now, you need to understand the difference between a fledgeling startup and a brand. Who are you most likely to put your faith and bottom dollar on? Our guess would be a brand. The same logic holds true for approaching potential investors. You might have the idea, but if the execution leaves too much to be desired, then you can just keep waiting for the investor to open his kitty.
Ensure you build your startup as a brand which is ready to take on the market. This involves a lot of work, like establishing the need your startup fulfils, identifying the market segment it is viable for, constantly checking on the numbers or revenue being generated, measuring the sustainability of revenue over a longer period of time, the profit to investment ratio, etc. Draw a clear picture for the investor, so they can see value in the project and give it a thumbs up.
“My advice to entrepreneurs is that they should start ventures which they truly believe to be a big opportunity, and ones they are willing to risk everything for. Do not treat funding as a goal but as an enabler to achieve something bigger.” – Rutvik Doshi, Managing Director, Inventus India
Ever asked someone out on a date? Well this pretty much works the same way! After you’ve got your brand building game on track, it’s time for you to woo and charm your way in. Be prepared for a lot of starry-eyed running around as you seek an opportunity. You know the usual courting sequence – there’ll be just a little less romance (actually likely none), and a whole lot of perseverance and card distribution ceremonies.
Grab on to every opportunity possible to approach an investor and put in a word for their time. This could involve cold calling, attending conferences or business events, and taking advantage of the advent of social media. Now you can just email or use LinkedIn and other professional online platforms to connect. A word of caution – pay attention to what you say and how you say it before you go knocking on doors for funds.
After you figure out your investor meeting strategy, you must do your homework. Research, research, and research more. Find out everything about the VC, their background, the kind of startups they have invested in, the dos and donts, what they pay special attention to, etc.
What do you ask for, what do you share, what do you pitch, etc. are just some of the questions that should be clearly answered in your head. You should be ready with clear answers to questions about the problem you are solving, the value you are creating, when are you looking to break-even, how do you plan to scale if you are bootstrapped, etc.
Also, another point to look out for is to research about investing in general. Figure out what kind of investments exist, what flexibility do these options offer, etc. The only way you are going to get that investment is if you are prepared to win them over.
“Let me put it this way – an A-class entrepreneur will somehow make a go of a B-class idea, but a B-class entrepreneur will kill an A-class idea.” – Saurabh Srivastava, investment professional
Once you’ve got a meeting fixed, your next job is to prepare a concrete presentation and plan. Do not, absolutely not, leave anything to chance, and be on your toes to answer every potential question. The presentation must cover all key topics and areas of concern that may interest the investor, like industry depth, talent pool, future plans, etc. While a presentation can’t show everything, it’s important to have clarity on answers so you can take a more hands-on or conversational approach.
Another point to keep in mind – don’t ramble on for hours. Keep it curt and precise; the more you drag the presentation, the more you risk losing their attention and possibly a way to their vault.
“When a founder’s passion and competence are paired with authenticity and intellectual humility, it’s hard not to pay attention.” – Sahil Kini, Principal, Aspada Investments
Once the investor understands your valuation and plans for the company, they may take some time to analyse the prospect. This can involve internal scrutiny of your projects, past, etc. before a proposal to invest is made.
Now, this will be likely a nerve-wracking period – you’ll have constant butterflies in your stomach and the itch to contact and drop emails will grow. It’s not easy waiting, but pushing and prodding for an answer will get you nowhere but in their bad books. Give the investor(s) time to follow up, and if necessary, offer to answer any questions that may arise.
However, sometimes even if you have all the right moves and the numbers make sense, it doesn’t always result in the investor opening their kitty. It could be for a number of reasons like market factors, funding cycles, unit economics may not match, or the company’s inability to scale in the future, to name a few. However, don’t be disheartened, stick to the points above, and you’ll get success eventually.
Remember, this is just a basic overview of what you can do to approach investors. Professionalism, preparedness, and patience – all it takes are these three Ps to give your dreams wings to fly.