It has never been easier for promising startups to access funding, according to a panel of venture capitalists who discussed the outlook for the sector at a recent event in New York City.
"You can probably walk down the street and meet five people in one given city block who identify as angel investors who would have otherwise put their capital into stocks and bonds a few years ago," said Meghan Cross Breeden, partner with AmplifyHer Ventures.
In fact, in 2019, about $140 billion was invested in venture capital deals, according to Venture Monitor.
But there is also more scrutiny facing startups. In 2020, after investor darlings like WeWork, Uber, and Lyft fell out of favor, potential backers want to know, with greater certainty than ever before, your path to profitability. If you've decided venture capital is right for you, here are their top tips on how to capture the attention of investors.
1. Tailor your pitch to the coast.
While New York venture capital is more focused on the financial details of an agreement, San Francisco is more keen on product innovation, according to panelist Tracy Chadwell, founding partner of 1843 Capital. And that makes sense, she said. One is full of financiers, the other engineers. Cross Breeden agreed, saying it adds up to a culture that is "tech first" (West Coast) versus one that is "tech enabled" (East Coast). That thinking also underscores mainstay advice for attracting investors: Do your homework and know your audience. Customize your pitches and target VCs accordingly.
2. Listen first, talk later.
You know you need to deliver a concise and engaging story to potential investors. But, according to this panel, VCs prefer you start the meeting by allowing the investors to speak. You can ask, for example, what types of companies similar to yours they have funded in the past.
Once their thoughts are on the table, investors will have more room to listen to you. Cross Breeden even has a signature rule: Don't speak for more than 90 seconds at a time without pausing to check if the investor is engaged or has a question. And right before each pause, end your last sentence with an inquiring inflection. That might prompt them to nod along, which signals to you that they understand what you're saying and you can continue. "You're having a conversation with a person, not just a checkbook," Chadwell explained.
3. Show solidarity and share the spotlight with your team.
When a company comes in for a meeting, Chadwell pays attention to the body language between founders, co-founders, and early staff. It's a red flag for companies to have strained relationships between co-founders--and she looks for signs of cracks early on.
If you arrive at a meeting and don't let anyone on your team speak, especially if you came with quite a few people, that can also be a bad sign, said Barry Osherow, a partner at technology investment firm Level Equity. While you might think it is most efficient for you to be the one to make the full pitch, share the platform with your team. Showing how employees can effectively collaborate is a huge plus for investors.
Venture capital isn't for every company and comes with its own burdens. But if you're truly prepared to scale--a growth rate of 10x over a certain amount of time--then watch where you pitch, get to know your VCs deeply, and show off your team's strong culture for the best chance at landing an investment.