The harsh reality of fundraising is that Venture Capital (VC) investors give out hundreds of rejections per week. An interview from Sifted revealed that there are, in fact, less than 100 acceptances granted across the span of a whole year.
As Venture Capitalist investment is a major catalyst for startup growth, it’s vital to know whether your pitch stands a chance, and whether your startup is ready to face the challenge.
Below, we’ve discussed some trip-ups that commonly lead to that gut-wrenching “no”. By identifying potential flaws within your pitch, you can get a clearer picture of the steps you need to take to achieve success with VCs. However, if you’ve already got these bases covered, you might be ready to give it a go.
Match your business with the right firm
The very first thing you should do as a startup is be certain of which funding round you fall under. Pre-seed companies blindly approaching large Venture Capitalist firms will hit a wall early on. Typically, VC investment is associated with Seed and Series A funding, raising capital ranging from £150k - £15m.
Having said that, each firm is different, and you should always make sure that the Venture Capitalists in front of you favour the position of your business. For example, Fuel Ventures specialises in Seed funding, so a startup pursuing Series A (upwards of £2m) would be better received elsewhere.
Does your product or service offer something new?
Venture Capitalists are looking to invest in companies that shake-up their industries, disrupting normality and bringing something totally unique to the table (think Uber, Deliveroo, Tesla).
You may want to consider if your startup has:
· Technology that no one else has;
· A product/service that’s difficult to replicate;
· A market gap large enough to generate significant outcome;
· A novel monetization strategy.
Countless startups fail to achieve Venture Capitalist investment because they’re either too similar to an existing product or service, or they’re entering an over-saturated market with no real distinction setting them apart.
Even with a great business plan and a talented team, an unexcited, crowded market is a clear red flag.
Do you have a plan?
Though VCs take a more central role than early-phase investors, they don’t want to be spoon-feeding founders. A company that’s ready for Venture Capital investment will be able to tell investors exactly what they’ll do with their injection of capital, and what the results will be.
Evidently, founders must present a calculated business plan, with all assertions backed up by figures and metrics – VCs won’t simply take your word for it. When it comes to financial projections, there’s a certain sweet spot. Underwhelming numbers may turn Venture Capitalists off, but equally, unrealistic turnover expectations show that you’re not being realistic.
Top tip: VCs see mistakes or inconsistencies in your pitch deck as tell-tale signs that your business isn’t ready to advance. Triple check your figures, file names, spelling, page numbers, format and visual appeal.
Do you have a stable, well-rounded team?
A sure-fire way to leave a Venture Capitalist empty-handed is to give the impression that you and your team would be difficult to work with.
Seed and Series A rounds see the investor become more involved in the operation of your business. This means that Venture Capital investment entails close, frequent contact and a long-term business relationship. If you don’t strike up a good rapport with potential funders, this ongoing relationship might be difficult for them to envision.
A founder that’s ready for Venture Capitalist investment will demonstrate an eagerness to grow and change. These are high-stakes scenarios, where VCs expect to see significant commercial growth within a fairly short time frame.
What’s more, Venture Capitalists are expecting equity in return for their capital, so you need to go into this willing to hand over partial control. If you show resistance when it comes to advice or instruction, or if you’re not to offer up shares of your enterprise, Venture Capital funding isn’t for you.
Ultimately, know what you’re signing up for, this is a partnership! Be charismatic, be flexible and be forward-thinking.
Remember, VC funding is difficult to come by, so don’t be disheartened if it’s not quite your time. Most viable businesses never surpass the Seed round!
All in all, Venture Capitalist investment is based on; your needs in an investor; your business model; your business plan; and you.