For companies in the startup stage, securing financial backing from a venture capital (VC) firm is often an effective way to raise money and bring credibility to their company. However, startups can face challenges getting their foot in the door of a VC firm. The following are four tips designed to improve a startup’s chances of securing a meeting with a VC.
At the start of any fundraising effort, it is vital that a startup do as much research as possible on different VCs. For example: what kinds of companies does a VC typically invest in, where is it in the funding process, what is the firm’s reputation in the business and VC communities, and what is it like to work with that firm?
After researching firms as a whole, startups should dig deeper and research specific partners within a VC firm. Oftentimes, partners will have different focuses and specialties within a firm.
Finally, startups should research specific information about the companies that the VC has invested in. For example: what has happened to the companies since funding, who are the board members and officers of the companies and what are their backgrounds, what aspects of the companies sparked an interest in the VC that led to funding?
Although some founders find networking uncomfortable at times, networking is extremely helpful in the funding process. Founders often find cold contacting a VC partner without any connection to that partner or firm particularly uncomfortable, and the cold contact approach is often ineffective.
First, founders should attend networking and industry events. The purpose of these events is to get to know people who are also interested in making connections.
Second, founders should consider utilizing various contacts to reach out to officers of a VC’s portfolio companies. These officers can be great sources of knowledge about the VC, as well as the funding process generally. Investors into VC funds that founders meet through networking are also good contacts.
When networking, founders should utilize all the tools available to them. For example, LinkedIn allows founders to see connections in their existing networks that they may not have known existed.
A founder’s initial introduction to the VC can be an extremely important part of the startup’s fundraising process. Officers of the VC’s portfolio companies work closely with the VC and can serve as a great source of introduction for founders to the VC.
In addition, most VC firms have an online application option, whereby startups submit their business information to the VC and the firm reaches out later. While the online application process can work, a warm introduction is much more effective, so founders should pursue introductions whenever possible.
When founders prepare to connect with a VC for the first time, founders should have a plan for all communications with that VC. Launching into conversation with a VC aimlessly is generally not productive — founders only get one chance to make a first impression, and a VC’s first impression of the startup is often the only impression.
Founders need to be clear, concise, friendly and organized in all communications. Founders also need to be sure they are able to explain clearly their business and its plan for the future in a few sentences. Founders should have answers ready to questions about their company, such as information about the business plan, how they plan to monetize, plans for product development or the plan to expand or diversify the company.
Gaining VC funding is a critical step in the growth of many startups. Founders may find the process of finding a VC to be intimidating, but the concrete steps above can make the path to funding feel a little safer.