Money is a major source of concern for all entrepreneurs. Developing a startup isn’t cheap, which is why it’s important to secure enough funds to get your business on the road to success. In order to clear this hurdle, many entrepreneurs seek out investments from venture capitalists (VCs), receiving funds in exchange for a share of the company’s equity. Though there are numerous risks associated with attaining money from VCs, the payout can be tremendous. To help you navigate the murky waters of the VC landscape, consider the tips below.
1) Decide Whether or Not to Go the VC Route
Figuring out whether VC investments are right for your business is the first step. Seeking funds from VC firms has a whole wealth of benefits. It’s not just about the money—VCs also leverage their experience and mentorship to help you take your startup to the next level. Furthermore, VCs possess a broad network of valuable contacts and a reputation that can lend instant credibility to your business. On the other hand, VCs aren’t for everybody. You might not feel comfortable giving up a share of your company’s ownership or control. Also, a VC’s plan for your company might deviate from yours and, like any commitment, there’s no easy way out once you’ve signed on. As a result, before pursuing VC money, know your alternatives. Crowdfunding, bootstrapping, government grants, incubators, friends and family are all potential funding sources that might match up with your goals more effectively than traditional VCs. Our Funding & Financing resources will be able to expand your awareness of potential routes you can take. Only once you’ve researched your options will you be able to come to an informed decision.
2) Pick the Right VC for You
If you decide to go the VC route, don’t rush into anything. Remember, the journey you take with your VC won’t be a short one and a harmonious relationship is critical if you want to find success. Research different firms and look over their portfolios. What kind of markets appeal to them? Do their interests line up with yours? Do they have clear expertise they can bring to your startup? Additionally, make sure your VC is excited about your project. Just as employees commit more when they are passionate about their work, VCs are much the same. You stand to benefit the most when they love what you’re doing. Finally, be patient. If you can survive for now without VC funding, take some time to scope out your options. Pick three or four funds and keep them updated on your company’s progress semiannually. That way, you can still benefit from their feedback while deciding whether you’re willing to commit.
3) Nail the Investment Pitch
You won’t be able to pique a VC’s interest if you can’t nail the pitch. Ultimately, nothing lures a VC better than a sound business strategy grounded in comprehensive knowledge. Show that you understand your market, including both your competition and your consumers, which you can do by checking out our industry-specific Accelerator Guides. When discussing your market, make it clear that you’ve validated your hypotheses by getting out of the office and interacting with consumers directly. Moreover, be sure to give realistic projections and a fair valuation while also explaining in clear terms what you plan to do with the venture money. Finally, emphasize the strength of your team. VCs aren’t just putting their funds in your hands—they’re also counting on the talent you have working for you to propel your company to success. All things considered, make sure you have a thick skin. Rejection doesn’t necessarily mean there’s something wrong with what you’re doing; rather, your business might simply lie outside the VC’s interests. Either way, VCs are obligated to give you feedback, so listen carefully to what they have to say and decide for yourself whether you need to tweak your strategy before moving to your next pitch.
4) Know How Much Money Is Enough
Don’t feel like you have to think big when it comes to seeking capital. The VC landscape is populated with funds of various sizes and many startups might be better off seeking smaller investments as opposed to larger ones. After all, raising more money than you need can result in sloppy spending, which isn’t a path you want to follow when you’re working with somebody else’s cash. Instead, consider raising just enough capital so you can hit the point where your company becomes scalable. Once you’ve successfully proven the viability of your business model, you’ll have more of a leg to stand on should you ever need to seek out additional investments in the future.
For more information on UBC’s commitment to helping local and area entrepreneurs, check out Entrepreneurship@UBC.