Second--and perhaps more importantly--you need money to turn that idea into a full-fledged business. You could call up a wealthy uncle, take out a bank loan or even sell off some personal collateral for a quick boost. The vast majority of startups pursue the VC route, as evidenced by the $148 billion VC dollars pumped into private companies last year, according to Pitchbook.
Fundraising is a long and winding road. It's confusing if you've never navigated the process before. VCs have different styles, personalities and approaches.
As a group, they have one thing in common: They took money from Limited Partners and are generally bound by their agreements, meaning they have to impress their partners, too.
Sure, you may think you've heard it all before. As someone who's coached hundreds of companies through the VC process, I want to share five insider tips that you won't find elsewhere:
1. Get to know investors in your space.
Any investor worth their salts will do their homework on you and your company. You should do your due diligence getting to know the VC firms. There's no excuse for not researching what investors are looking for, what companies they've already invested in, how big their fund is, and more.
Once you've done your homework, go ahead and reach out--even before you're asking for mega bucks. Get to know target investors, set up dinners, start to communicate. Little relationship-builders will go a long way once you're actually trying to raise money.
2. Initiate the round.
This is where the heart of the process begins. When you reach out to investors, start with contacts you already have a relationship with. For those you don't know, figure out your degree of separation or try to make contact at an industry-event--something to get on their radar without emailing them cold.
Whatever you do at this stage, don't show your hand too soon. Save the meat of your pitch for a face to face opportunity.
3. Pitch, pitch, pitch.
Now, it's time to meet with the firm's representatives. It's key to understand their roles and how they'll contribute to the firm's final decision. Polish up your pitch--soon, you'll be repeating it until you're blue in the face.
Practice your pitch in different styles. Some investors like an engaging, conversation-style format. Others want to be taken through a deck. While you might prefer one style over the other, prep your pitch a few ways so you'll feel prepared no matter what the investor throws at you.
These meetings will be intense. You'll be fielding questions left and right--about your team, the company, its market strategies, your industry--so know your stuff. This stage is critical, because after these initial meetings, the VC team will report back to the firm and decide if they want to dive further into the process.
4. Dig deep.
You've made it past the first round, congratulations! Now, you'll sit down with the whole team where you'll be expected to go into excruciating detail about your company and industry.
You'll go through that pitch again, and be asked for references. The goal here is to peel back the layers since you're discussing the possibility of working together for years into the future.
Personally, I find it beneficial to request investor references as well. Before jumping into a partnership, you want to make sure they jive with your company and have similar goals before bringing them onto your board.
Investors will be secretly judging you on your commitment to your business. If you're not truly engaged in the industry and building what you're pitching, they'll quickly sniff you out.
Show your commitment by detailing how you've personally invested in your business. The fundraising journey has its ups and many downs. Sometimes, the commitment you have to the business is the only thing that will get you through.
5. Cue the lawyers.
Now that you've wowed the socked off all the VC stakeholders and signed on the dotted line, the finish line is in sight. But first, lawyers, experts, and accountants will enter the "diligence" phase of the process. They'll finalize the investment by going through all details with a fine-tooth comb to ensure everything matches up.
Even though you've already signed, the deal isn't done until the wire has cleared. Any unchecked detail has the potential to derail your months-long deal, ruining your current fundraising journey in the process.
The key to making it out as quickly and easily as possible is for both the investor and investee to stay actively engaged. If and when any confusion arises, it can easily be sorted out if everyone's paying attention.