Sometimes, growth is almost impossible without a significant chunk of money and other resources to fuel that growth.
If you're hoping to raise venture capital next year, check out the following advice from Ashish Rangnekar, the co-founder of BenchPrep, creators of test prep and subject-based interactive courses for computers, mobile phones, and tablets. BenchPrep raised more than $2 million in 2010 and an additional $6 million earlier this year.
Here are Rangnekar's tips, in his own words:
1. Remember, it's always about you.
We closed our last round of funding in July, but we started talking to investors last October. We felt ready: We had expanded our product line, our revenues were up, and we had won a number of awards. Yet when we first talked to VCs, while they loved our product they looked at us as if to say, "Who are you guys?"
We realized that even if you have had success, it's not just the product and the story. VCs also make that investment in you. They want to feel sure you will take the money and do the right things.
So as I talked to the same investors every month for the next six months I made a point of sharing examples of creativity and resilience in our management team. I talked about projects and results, but I also helped them know us as people.
Building that sense of you is even more important for start-ups located outside Silicon Valley. Because we're a step away, we had to put more effort into reaching out and build trust over a longer period of time so that when we were ready to ask for money, investors knew our product and knew our story but they also knew us, as leaders.
2. Be consistent.
In our first meeting with a VC, we would highlight what we had accomplished that month. If we met with the same VC two months later, we would talk about the good stuff we had done in those two months.
The problem was, we weren't consistent. VCs would think, This is great, but what about the story you told me a few months ago?
That was a real eye-opener. We had the right data and results, but we weren't showing the consistent growth and positive trends behind our efforts. We weren't showing a consistent pattern of success. From then on, we chose eight or 10 metrics we knew were important and detailed those results every month.
Don't just share your highlights. Decide what really matters to your business and share those results in a consistent fashion.
3. Demonstrate external credibility.
Deciding to invest in any start-up is risky, so investors look for incremental data to reinforce and support those decisions.
In our case, we showed that some of the biggest publishers in the world were willing to bet on us. In October, I said, "I'm going to get Pearson, Wiley, McGraw-Hill..." Then four months later, I was able to go back and say, "Here's what I promised and here's what I delivered: The biggest names in publishing have put their trust in us."
4. But don't simply try to impress.
The key is to make sure whatever you do is good for your business; don't do something just to impress potential investors.
There was a period where we thought that if we built certain features, investors would respond positively. For example, we worked on social elements because social is hot, but then we realized building a hot feature wasn't as important as building a feature that works well and increases engagement.
Creating products or features just because you think an investor will be impressed never helps. When we signed those deals with publishers, first and foremost we were doing what was good for our business.
That's what any smart VC really wants to see.
5. And don't try to do everything.
When we first started talking to investors, we tried hard to show we could do nearly everything.
For example, we're in education technology and learning management systems, or LMS--a hot sector. Just to get brownie points, we said an LMS was part of our plan and that we can do this and this and that, and we came across like a lot of start-ups that haven't yet figured out what they want to do.
A prominent investor called us on it. He said, "Your product looks really good, but you're doing too much. Cut down the scope by 60%, and focus on the part that's really important." So we did.
Never be afraid to say what you are not doing.
6. Don't just tell the story you think they want to hear.
We almost fell into this trap in our first round. One VC firm was very excited, but we saw ourselves as consumer based and it saw us as a technology service. It wanted us to go to publishers and help them create their own services. We could have taken the money, but then we would not have been building the company we wanted to build.
We are passionate about our customer focus. That's the business we want to be in. If something that important to you is not what your investors want, regardless of the brand name of the investor or the valuation or the investment amount, don't do it.
Even if you're desperate, don't do it. It won't work out well.
7. Truly understand why.
VCs care about where their capital will take you. That's the real why.
After our first round of funding, we continued working hard to create a product students would love. (Many companies build products focused on pleasing teachers or administrators, and they forget about the real consumer, the student. Our focus is on the student.)
So for 16 months, we worked with students and collected their feedback and kept improving and expanding our product line. During that time, publishers reached out to us for help in distributing their content. So we thought, OK, if 300,000 students love us and publishers love us, now we really have something.
We could show what we had done, and we know where we are going: We want to be the academic destination for every student. That combination of results and vision made for a compelling why.
8. Think long term, not one-time.
Almost never will a VC say, after the first meeting, "Wow, this is great. Let's do it!"
Investors want to see a consistent story and consistent growth over a period of months. And they want to build a level of trust with you and your management team.
Never see any meeting with a VC as a one-time event. Your first meeting is simply the first step in a long process. Be happy you got the meeting--and work hard to deserve subsequent meetings.