I recently moved to New York City (Queens to be exact) to work for a software startup. The company took a Series A round of funding in March 2018 and we are hoping to raise our next round in that same time frame. For people not familiar with the various stages of funding this is an early stage funding round, but not the earliest. The company had a strong product and some sales but needed an influx of money to take advantage of the market opportunity. In Silicon Alley- yes that’s what they call the Flat Iron District (triangle shaped building) in New York City for attracting lots of technology companies – I attended a Meet Up on Venture Capital Fundraising.
As someone who works in the startup ecosystem and is also interested in founding my own company learning more about how to fundraise and what Venture Capitalists look for in companies is key. It was a panel-style forum with around 200 people to see 3 panelists discuss raising money, the venture capital world and answer audience questions. Two panelists came from VC firms – Ryley Reynolds of Thrive Capital and Dan Ahrens of Insight Venture Partners. The third panelist was co-founder and Chief Technical Officer (CTO), Zach Silverman of Leaflink a business-to-business (B2b – just means they connect businesses together not consumers) marketplace, customer relationship management tool (CRM) and order management solution for the cannabis industry.
The 2 and half hour event (an hour and 15 minutes was the panel and the rest was networking) covered a large swath of topics from what do investors look for in companies, to how to best pitch to VCs, and how much money to raise and at what valuation. That was all very insightful, but what really stood out to me were 3 things:
- Having a clear vision and clear milestones to achieve that vision
- Preparation – how well do you know your numbers, market, and company
- Choosing the right partners
The first is having a clear vision and clear milestones to achieve the vision is one of the most fundamental. You must have a vision no matter how big or small of what the business is to become and how it will change the status quo. Beyond that, you must be able to not only tell the grand vision but also break down the small steps in between. Breaking down the small steps in between will enable you to make decisions around which investors to work with, how much money to raise, and what resources do I need. If you focus solely on the grandiose vision you are likely to put in place a shaky foundation that will not be able to support the master plan.
Investors look for the grand vision, but also the small milestones – why do you need the money, what are you going to do with it, when will I get my return, and do you actually have a plan. Employees and partners want this too. What does the next phase of the company look like as we work towards the big vision?
Second is preparation. Having a vision and clear milestones are all good and well but do you know your stuff. Do you understand the problem you are looking to solve? Why now is the time to solve it? Why are you the right team? Being prepared when it comes to understanding these questions and truly having data to support your vision and milestones is crucial.
Investors want to ensure that you have the data to back up your position, but also to know that you are aware of your weak spots. No one is perfect, no plan is perfect, and no company is perfect. Being able to say here is our plan vision to support it and the data PLUS here is what we could see as potential challenges and problems that we may face. Here is how we are going to overcome those and this is specifically where we will need help. Proper preparation allows you to objectively identify risks in your business plan that Venture Capitalists will see with or without you recognizing them first.
The third is choosing the right investors. Beyond having a compelling value proposition during an investor pitch you must also do your research on VCs. Who are the right partners that have the skills, connections, and experience your company needs at this stage? Conduct research on VCs that have invested in companies similar to yours that have built successful companies. Do your own due diligence on the VCs and build your target list of investors.
Having loads of money doesn’t mean you have the right resources or team to implement your winning vision. Plenty of lottery winners end up worse than when they started because having loads of cash doesn’t mean you are in a position to maintain and grow wealth. You have to have the skills and team to support you. As a startup raising money from investors is great, but it is not always the highest offer you should take. It should be the highest quality offer taking into account the factors beyond just dollars and cents.
In conclusion, there are a lot of tactical tips and tons of advice the three keys for me from the meetup are having a clear vision and milestones to achieve it, preparation, and being selective with your investors.