Before you decide to finance your start-up using venture capital (VC), you should ask yourself if this is definitely a journey you are prepared to go on — there is no turning back. The benefits of VC funding include the fact that you can grow your business much faster and you'll be able to build a better, more-focused product without the distraction of revenue generation from day one. However, you also need to consider that, by taking VC money, you are committing to an aggressive growth curve, with the risk and capital implications that go with it.
If you're still willing to take the plunge, here are some of my tips on how to secure VC funding for business growth.
- Make some noise — One of the main challenges you'll face when looking for investment is getting your company noticed. Make sure you get out to as many networking events as possible as they're great places to meet VCs and you'll have the opportunity to spread the word about your company and build credibility. Many entrepreneurs that go along to these events will have also ventured down the funding path a few times so you may be able to gather some advice and a few good investor contacts.
- Spread yourself around — Cast your net as wide as possible at the start of the process. Your proposition won't suit every VC and equally every VC won't suit you. By meeting as many VCs as possible, you are giving yourself the opportunity to select the right VC for your business. Yes, you may have to kiss a lot of frogs, but you'll eventually find the one for you.
- You are the interviewer too — This follows on from my last point. You are interviewing the VC just as much as they are interviewing you, so don't be afraid to grill them too. You are going to have to work with this VC for the next few years, so you need to ensure your ambitions are aligned. Questions you should be thinking about include what level of board participation they'd be expecting if they were to invest and whether they have any feedback on the company's strategy.
- Who is looking after your business? — When you set out to raise funds for your company, you need to bear in mind that it can, and probably will be, a full time job. As you're going to be attending meeting after meeting, wading through contracts, pulling together metrics, preparing and pitching, you need to have capable colleagues willing to run the business in your absence.
- Preparation, preparation, preparation — When meeting and presenting to VCs you need to know your figures inside out and back to front, so don't try and cut corners. Figures you'll need to have at your fingertips include user acquisition cost, cost to convert to paying, lifetime value, payback time, monthly churn, yearly churn and solid justifications for all projections. As well as knowing your company, metrics and product, you also need to know your competitors.
If you're certain that VC funding is for you, be prepared and good luck!