So you’ve worked hard at setting up and launching your startup, and now you’re ready to take it to the next level. Well, venture capital could be just what you need to accelerate your growth. But in order to increase the odds of getting that money, you’ll have to perform extensive research, prepare an outstanding pitch, and avoid the following mistakes that could cost you a lucrative deal.
Mistake #1: Your Business Isn’t the Right Fit for a VC
If the type of business you operate conflicts with a VC’s existing portfolio, you probably won’t get funding from them. Also, if your business is outside of the firm’s geographical mandate, the odds of getting a deal will be slim to none.
Before approaching any VC:
- Check their portfolio to see if they’ve already invested in similar companies
- Try to target the appropriate partner(s) in a firm, as that could increase your odds of connecting with the ideal investor
- When it comes to larger VCs, in particular, explore whether there are certain partners focusing on specific areas of your industry, or specific geographic areas, so you can determine if you’re a good fit
You might get excited when you see all of the venture firms that are out there, but the reality is that not all of them will be right for your particular company. Beyond researching the types of businesses that a VC has already invested in, check that the firm shares the same vision when it comes to your business and its industry. After all, when you receive venture capital, you’ll be entering into a serious, long-term relationship, so you’ll want someone who will help you fulfill your long-term plans.
Ultimately, you have to be prepared to approach several VCs until you find the perfect match, but the effort will be more than worthwhile when you see that huge investment check.
Mistake #2: You Can’t Prove Your Business Model Works
When you approach a VC, it’s best to already have some operational history in place for them to review. You should be able to show them that you’ve been doing business and you have customers interested in what you’re selling.
How can you prove that you already have the experience and know-how to drive your company forward?
- Don’t just walk in with an idea. At least have a working, early version of a product prototype
- Show your sales records if you’re already generating revenue
- Showcase the stellar feedback you’ve collected from customers, along with other validation from the market
- Provide proof that your company is growing and that your business model has scalability, repeatability, and profitability
- Keep in mind that many VCs are interested in companies that have a Total Addressable Market (TAM) of more than US$1 billion, so have quantifiable evidence of your current and projected earnings
Mistake #3: Failing to Highlight Why Your Team Is Unique
Even though you should be professional when approaching VCs, you shouldn’t be too rigid or boring. VCs are looking for great people to invest in, not just great products. In other words, they strive to invest in a solid business idea that will lead to long-term profits, but they’re also interested in the extraordinary people behind a brand.
- Be authentic; be unique. Prove that you’re one-of-a-kind and a rare find.
- Show off your fantastic team of professionals who are creative, hardworking, and distinctive in their own way.
- Share your story about your brand, your company’s culture, and your team. Let the VC know how your team came together, and why your team members fit your company’s culture so well.
Being realistic and honest during your pitch is also crucial. You need to prove that you’re trustworthy, credible, and a true professional. VCs need to be convinced that they can rely on you, that you’re capable, and that you’re knowledgeable.
Lying, or even just exaggerating, is a really bad idea. The venture firm will get to the truth during its research into your business’s actual data, and you’ll end up losing the deal, along with your reputation. So be transparent and approachable at all times.
Other Steps You Should Take:
- Have Someone Recommend You
Sometimes, it’s all about who you know. Many VCs won’t even look at your company unless someone they know and trust recommends you. So rather than sending a cold email, see if anyone in your network has access to a VC and ask them to introduce you. If you don’t yet have that connection, focus on expanding your network first.
- Refine Your Pitch
Developing your pitch is the most important step you’ll take after you’ve found a VC that’s interested in speaking with you. Structure your pitch by presenting what you’re company is all about, demonstrating your service or product, and then answering questions.
You should present yourself as an expert in your field, know your company’s numbers, and be able to answer tough inquiries. Describe what makes your company unique, how you can beat the competition, why customers are attracted to your offering, and why your business is necessary in today’s marketplace. And while you want to be enthusiastic and confident, you should also be aware of the challenges that your business will likely face—and overcome—over time.
Remember, there’s stiff competition for this type of business funding, and venture capitalists will be highly selective. Only a small percentage of businesses will actually receive this valuable financial support. But with the right amount of venture capital, and the right partners at your side, you’ll drive your company forward and succeed in ways you never thought possible.