Two years ago, startups raised more VC funding than ever before. Early-stage companies pulled in a whopping $130 billion through almost 9,000 deals.
However, many would be surprised to learn that less than 1% of startups receive any funding from VCs at all. In some cases, founders don’t want to give up control. For others, the market may not be attractive enough to generate sufficient returns.
Before deciding to pursue VC funding, your team must be on the same page. Going after investor capital is a major endeavor.
Once you have clarity, it’s time to hunker down and prove you’re worth the financial gamble. Below are four key ways you can set your business up for fundraising success.
1. Build Relationships -- Lots of Them
Startup financing isn’t typically a one-and-done deal. Founders may raise funding on and off for years while their businesses get off the ground.
Therefore, it’s crucial to build relationships with many investors in numerous settings. Ask respected peers for recommendations on who you should meet. See if VCs are open to you providing updates on your startup’s success.
Perhaps more importantly, don’t burn any bridges. Always treat others in the startup community with respect, as you never know who will help...or hurt your funding efforts in the future.
Even if you write an investor off in your pre-qualification assessment, don’t speak badly about him, as he simply may not be the right person for your particular niche.
2. Get Your Story Straight
One of the most significant factors in a VCs decision around whether or not to invest is the strength of the founding team.
- Do you have the talent to execute better than your competitors?
- Do you have the resilience to push through challenges?
- Do you have a deep conviction that there is a market for your services?
VCs want to know that their money is in good hands. Business models, products, and services change. Startups often have to pivot or tweak their initial ideas to align with market demand. It’s the founding team that gets the company through these transition periods.
Highlight why your background is especially relevant to your new endeavor. Prove that you are the absolute best person or group of people to carry out the vision with real-life examples of the ways you have succeeded in the past.
3. Provide Sound Financial Projections -- But Don’t Get Too Caught Up In Numbers
Obviously, VCs invest in early-stage companies to make money. They want to know what their potential returns are if they are going to place a bet on an unproven idea.
The challenging reality is that it is hard for startups to estimate their financial success. There are so many unknowns. There is also the added pressure of needing to prove you are worth the risk, which can cause you to be overly optimistic.
Yes, you need to prove that there is a substantial growth opportunity and market share available to win. However, don’t get too attached to data points or metrics that describe nascent markets.
Instead, find ways to emphasize the traction you already have. Use data that indicates what you are already doing solves a real problem for real people right now.
4. Practice and Refine Your Pitch Continually
Finally, you have to practice and refine your investor pitch continually. It takes time for you to master how you tell your story, display your passion, and convince hyper-intelligent individuals why your business will be one of the 10% of startups that is ultimately successful.
Practice by yourself, in front of peers, and in higher-stakes settings over and over. The more experience you have, the more confident you will be walking into a meeting with THE person who you want to impress.
As soon as you leave a pitch meeting, positive or negative, go back and evaluate how you performed. The moments immediately following a presentation are when you have a clear perspective on what worked and what didn’t.
Additionally, don’t get discouraged if you aren’t awarded VC money. You must continue to push forward and look for ways to improve. Get feedback from those who turned you down and address their concerns. The way you incorporate past pitch experiences will accelerate (or decelerate) your progress on the startup capital front.
There is no magic bullet out there for VC funding. But, by having a great idea, strong team, conviction, and a broad network, you will increase your chances of hitting a home run.