According to a survey by the National Small Business Association, more than a quarter of businesses claim that they didn't have access to the funding they needed to be successful. And while unicorn stories of $1 billion valuations abound, the truth is that venture capital funding has sunk.
Assuming you don't want to be on the wrong end of those statistics, it's time to evaluate what you're bringing to the table when you meet with investors. Here are just a few factors that will turn you into an attractive investment in the eyes of VC firms.
1. A Good Sense of Timing
As crazy as it sounds, a good portion of your success comes down to the state of the market when you walk in the door for your interview. Rama Sekhar, a partner at Norwest Venture Partners, a firm which manages more than $7.5 billion in capital with companies such as Uber and Udemy, looks for a startup whose timing is impeccable. "I often imagine the same startup approaching me two years ago or even two years from now," Sekhar says. "What combination of changing market conditions and technological breakthroughs have made now the ideal time for this company to succeed?"
It's not enough to release a product at the peak of its hype cycle--oftentimes, the market is already so saturated with competitors at that point that the opportunity has already passed. You'll get a more positive response from investors if you can show either a believable forecast for growth or proof of the superiority of your offering over the competition.
2. The Right Metrics
Big hitters like Google and Amazon are built on consumer data, with analytics constituting the backbone of their success. But even the newest startup requires metrics by which to judge its progress, because the top investors are looking for data-backed proof of a company's viability.
Depending on your industry, you need to be ready to illustrate to investors exactly why they should invest. Whether your top metrics are customer lifetime value, customer acquisition cost payback, or committed monthly recurring revenue, demonstrate that you have a handle on gauging your own performance and don't rely on vanity metrics to pad out less-than-desirable stats.
In a SaaS business, instead of focusing specifically on a monthly recurring revenue or annual recurring revenue growth rate, you'll want to calculate a year-over-year growth rate of your monthly MRR. Calculating total revenue might result in better-looking metrics, but that's probably because it includes revenue from one-time services. Make sure you're giving investors the specific metrics they're looking for. If you don't, they'll be justifiably wary, and the chances they'll invest will plummet.
3. A Compelling Story
Getting an ambitious startup airborne requires truly compelling communication. Average communicators will find it very difficult to convince potential investors that they have a good chance of achieving success, which means they'll have a hard time persuading other stakeholders, motivating their employees, and winning over potential customers who are on the fence about their product or service.
While impressive numbers are important, an emotional connection is more likely to hook investors, so start your presentation with an attention-grabbing story to reel listeners in before you bring on the hard facts.
4. A Capable Team
Startups seeking funding often over-focus on their product or service. That's understandable because that's what the founders are passionate about, and it's why they started the business. Investors, however, aren't investing in (or buying) the product. They're investing in the people who hope to share that product with the rest of the world.
Even the strongest business model will fall apart without the right hands at the helm, and investors know it. The main priority for many VC firms is the quality of the company's team, as it's the team that will be building the business. Only after they feel confident about you will investors move on to the market size (bigger is better) and then, finally, product. A charismatic and capable team is something every investor is going to be looking for in a startup.
To succeed in the funding game, you need to have your timing down and credible metrics to back up your claims. You also need to understand how markets work and have a plan for growth. Finally, your team's passion and skill sets must be readily evident to those you interact with. If your startup can confidently check these boxes, don't be surprised when venture capitalists start lining up to provide funding.