Venture Capital
From Entrepedia: The Entrepreneurship Wiki
Each venture capital firm will have its own unique set of qualifications that they are looking for in applicants; however, there are some general ideas that you can keep in mind when you are preparing to approach VCs. For example, your business idea should be compelling in that it encompasses more than just your product or service; it should also demonstrate a close understanding of the problems within an industry or an opportunity that can be capitalised on, and offer an elegant solution. However, this is only the hook you can use to get venture capitalists interested; it will not work on its own. [1]
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Preparation
Is your business venture fundable? / You need to show:
- Rapid and sustainable growth
- Significant size and scale of market share
- Disproportionate profitability
You need to ensure that you have put together a team in which you are, and VCs can be, confident. You also need to do a significant amount of market research so that you can demonstrate knowledge of a market in which your idea will generate a substantial amount of value.
Of course you will also need to be able to show financial projections to back up your claims of profitability. These include cash flow projections, profit and loss projections, and balance sheets for three years. You should not only be able to demonstrate substantial and sustainable growth, you should be able to identify the factors that drive, and will continue to drive this growth.
Your goal when approaching VCs is to demonstrate to them the credibility of your venture as a sound financial investment for them; a large part of proving this credibility involves putting enough effort into your pitch and executive summary to ensure that it is comprehensive and persuasive while still concise and engaging.
What VCs are looking for, quoting Sean Foote, Labrador Ventures
- Be prepared: as an example, Labrador Ventures invest in 5-7 ventures annually, choosing from 3000 business plans!
Advantages of Venture Capital Investment
Venture capital investment can offer more than just financial support; a new venture can gain from the strategic advice, pressure, moral support, and networking that can come along with venture funding. VCs can also give the benefit of their own battle scars from situations and stages of development. However, keep in mind the VC maxim: the best companies require the least work.
Take advantage of the benefits that are available but don't rely on them for the success of your venture!
The Right VC Firm
The right VC firm would be one that already shows a focus on companies that look like yours. They would know you or the company personally, and would seek to find your strengths, while historically they would accept the weaknesses of companies like yours, and helped to improve them. Most importantly, they should have a close understanding of the industry that your venture is in.
- Stage (and $/partner)
- Industry
- Geography
They should invest during this financial cycle
- Deploying capital
- Cash on hand
- Not distracted by fundraising
Pitching for VC
The Pitch Doctor, Bill Joos, has written an extensive article on Perfecting Your Pitching, giving tips on the physical aspects of your pitch — how to optimise your visual presentation and use slides to your advantage instead of finding out later that they hold you back. He also discusses some of the best ways to prepare for your pitch, and how to present in a way that captures the attention of your potential investors, and keeps them interested. Bill has also provided a short video clip describing some of the key aspects that he finds will unknowingly sabotage your pitch and offering tips on how to avoid them.
Tips
Approach VCs early and ask for advice/feedback: they might ask you to come back to ask for money later. Keep in mind that in an informal/non-official situation their defences are down and they might tell you what to do later to get them interested in you. Remember, VC deals take time - usually 9-12 months, with high interest industries (e.g. Green Tech) possibly 6-8 months. You should be looking for a partner not an investor - "Love the one you're with!"
If you were unsuccessful raising VC interest, don't accept a "No" right away: ask for deficiencies instead, and go through at least 5-6 deficiencies. Ask the investors who they think you should approach instead - this way you might get an introduction and insider information on investors more appropriate for your business as well as a briefing about your company.
- More VC pitching tips
Venture Capital in Scotland
- Scottish Enterprise
- Braveheart Ventures
- Scottish Investment Group
- Has Edinburgh University “deal”
- £50K investments
- Braveheart Investment Group's Ground Rules for Success
Further Reading
- John Doerr (Kleiner Perkins Caufield & Byers): "How to Negotiate Valuations" in Stanford Entrepreneurial Thought Leader Speaker Series
- Heidi Roizen (Mobius Venture Capital): "A Common Mistake: Treating VC money as Your Own" in Stanford Entrepreneurial Thought Leaders Lecture (video)
- Heidi Roizen (Mobius Venture Capital"What Numbers Do VC's Look At?" in Stanford Entrepreneurial Thought Leaders Lecture (video)
- Heidi Roizen (Mobius Venture Capital): "Venture Capital vs. Corporate Funding" in Stanford Entrepreneurial Thought Leaders Lecture
- Guy Kawasaki (Garage Technology Ventures): "Make a Great Pitch - The 10/20/30 Rule" in Stanford Entrepreneurial Thought Leaders Lecture
