How To Raise Venture Capital

Are you involved in a start-up? There is no question that raising venture capital can be an arduous and frustrating process, to say the least.

Here are 10 things you should know:

1. Raising seed money (or early-stage financing) takes longer than anyone could ever anticipate — much longer than your average time frame of 52 weeks — but only if you do not understand the basics of how to approach investors and negotiate a term sheet. It’s critical that you learn as much as possible about this topic and then apply what you’ve learned. Without this knowledge and ability, it will take longer for your company to secure funding. Venture capitalists typically receive hundreds of business plans each month, so they must learn how to skim quickly and pinpoint the good opportunities. If you or someone at your company can frame your business idea in a way that makes it easy to understand, shows why it’s an attractive opportunity, how much money you need to raise and what milestones will be achieved along the way, this can make all the difference in securing funding.

2. The key points of any investor presentation are (1) the size of the opportunity, (2) why your solution is needed now and (3) why you are qualified to pursue this solution. Investors want to see proof of customer interest. This could be market research or simply testimonials from beta users or customers about their excitement for what you’re doing. For example, investors want entrepreneurs who’ve had success in the past. When it comes to start-ups, investors like to see seed money from angel investors or other venture capitalists rather than bank loans.

3. Do not jeopardize your company’s future by selling too many shares in return for less money just because you are desperate for funding. This is often the case when entrepreneurs are raising their first round of outside capital. They don’t realize that it can be just as difficult to raise money two years into the process as it is at the beginning, so they sell more shares than necessary, resulting in a lower valuation and less control over the business. For every additional investor, ask yourself how much impact this person will have on your company’s direction and culture?

4. If you do not work to build, maintain and leverage relationships with your existing investors, finding additional investors will be quite difficult. An entrepreneur must understand that the primary reason most venture capitalists invest is because they are interested in building a relationship with him or her. Therefore, it is critical that you keep them updated on progress. Have an annual meeting where everyone gets together to discuss the business and review the direction of the company.

5. You might need to take more than one funding round before you secure enough capital for your business idea to take off. Many entrepreneurs think they can raise all initial funding at one time by approaching angel investor groups or venture capitalists; however, this is seldom successful. If you don’t have great timing or luck, try again later with another pitch.

6. When you pitch to angel investors and venture capitalists, they want to know how much money your company will need now and in the future, as well as how their investment will be used. Be prepared to communicate a clear explanation of this information. If you do not have all the answers readily available, it is okay; just indicate that these details are coming soon or that you would like to follow up after you’ve had some time to prepare the materials (and always follow up). The bottom line: Always provide potential investors with access to information about your business — both on paper and online — at their request. This shows you’re serious about making an investor feel comfortable about putting his or her hard-earned cash into your new enterprise.

8. If you are having problems getting the first round of funding for your start-up, try finding an accelerator program to work with. Accelerators exist to help early-stage companies secure investors and strategic partners through mentorship programs, training workshops, and business development opportunities that are focused on growing revenue quickly. These organizations typically provide entrepreneurs with seed money in exchange for equity or at highly discounted valuations.

9. Do not be afraid to ask friends and family members if they would consider investing in your company. This may seem risky because you will have limited time to raise money, but these people probably already know you well enough so that they feel confident about putting their own hard-earned cash into your new enterprise! You can always increase the size of the investment pool by tapping your professional network for investors, as well.

10. Finally, try to maintain an even-keeled approach when it comes to raising money. If you are too overconfident or overaggressive in your pitch, potential investors will think you are desperate and not worth their time — but if you seem too timid, they might walk away thinking that your company is not ready for prime time either. A good rule of thumb is to always be prepared with a solid business plan and leave any emotions out of the equation until after the funding round has closed.

Further Reading:
- How to Make A Pitch Deck For Investors