Getting VC Funded
This Blog was first published May 22, 2012 on the Innovation Factory blog.
Last week I had the opportunity to attend PwC's Vision to Reality conference. It was one of the best one-day conferences that I have attended in many years featuring a keynote presentation by Eric Reis, author of The Lean Startup. What was even more insightful was the morning panel discussion featuring VC's Howard Gwin of OMERS Ventures, Daniel Klass of Klass Capital and Mark Usher of Wellington Financial. The audience was treated to seeing to excellent start-up CEO's James Prudhomme of Recoset and Allen Lau of Wattpad. During the session, each CEO presented their pitch, and then had Q&A with the panel while the audience watched. Following this, the CEO left the room and the VC's debriefed with the audience, covering their thoughts and discussing the fundability of the company.
Here are insights from that morning that every start-up CEO needs to take to heart as they develop and pursue their funding strategy.
Unless you are a multi-time, serial, successful entrepreneur that VC's just want to "throw some coin at", you have an uphill battle. There is one-tenth of the capital available today as compared to ten years ago yet with the cost of starting a company dropping, many, many more companies competing for this capital.
One of the recommendations from the VC panel was to start early, before you need to raise money. Raising capital is about building relationships. In your first meeting, present a series of milestones that you plan to achieve. Have a follow-up meeting in six months to show how you have progressed against these milestones, discuss what you have learned about your market and what your next milestones are. Then, Rinse and Repeat. Over time, you and your company will build interest and credibility.
Consider the VC relationship like a CEO and your Board. Boards don't like surprises. Neither do VC's. Update them when something positive happens or when you pivot. Keep them periodically informed to keep them interested. Remember, your objective is to show positive momentum and traction.
Another way to build interest is to build your team. If you are not a multi-time founder, then surround yourself with people who are. Their credibility will rub off on you. They aren't easy people to attract because you are going to have to prove to them that your start-up has potential; your momentum and proof-points are building; and you and your team are coachable. VC's know this is what it takes to attract these people as advisors so the fact you have them separates your company from most.
Solve a massive problem with a disruptive solution. VC's love large outcomes. If you can't show this potential and back it up with results that are following a hockey stick trajectory, then you are likely not VC-fundable.
Tell your story like a business person. If you are a tech entrepreneur, get a domain expert who can contextualize the business aspect so it is easy to understand. Technical complexity doesn't impress as much as being able to tell the story in a straight-forward, simple manner that makes sense to any business person. It is a bad sign if the VC needs to call in their tech experts to figure out if your company is the real deal. So tell a non technical story about a big problem, with a disruptive solution, showing massive traction and proof points, delivered by a team with strong domain knowledge.
And if you get a chance to watch an experienced, multi-time successful founder pitch their business, pay attention. You will be impressed.