In The Art of Startup Fundraising, Alejandro Cremades writes “Your investor choices can either destroy your dreams and turn them into nightmares, or break down numerous barriers on your flight to your full potential.”
After 14 years as a venture capitalist and investing in hundreds of companies at China Growth Capital, I have learned that attracting and choosing the right VC firm means more than accepting the first one that shows interest in your company. Here’s how to attract investors and pick the right one for your business.
1. Evaluate if your company really needs VC funding
There are pros and cons to raising funding at different stages of growth for a company. You may want to consider other forms of financing such as friends, family or bank loans or angel investors. Ask yourself the following questions before you seek venture capital funding:
– Can I show good performance in my business plan?
– Do I have a clear strategy for how the money will be spent?
– Do I have a strong team and the right advisors?
Remember that VCs are looking for strong entrepreneurial teams who are passionate, talented and transparent. They are also always looking for high growth businesses that have already seen some initial success.
2. Choose a VC firm with a positive reputation in your industry
Mark Suster, entrepreneur and venture capitalist, recommends building an A-list of 8 to 10 venture capital firms you’d like to work with. Factors that determine suitability include the stage of your company, your geographic location, and your industry sectors.
Consider the following for your A-list:
– Has the VC invested in companies similar to yours?
– Do they have particular insights into your industry?
– Do they have a good reputation among other entrepreneurs?
– Has the VC won any awards?
You can also subtly reach out to their existing portfolio companies and ask if they enjoyed working with the VC firm. The more information you can glean, the better. Entrepreneurs should be more selective in the meetings you take. There are VC firms that will meet you to collect your data for comparison with other companies but have no interest in investing in you.
3. Meet VCs through industry events
If you don’t have contacts who can introduce you to a VC firm that you’re interested in, I recommend attending industry events. One event that is very popular with Asian investors is Asia Private Equity and Venture Capital Forum (AVCJ), which is taking place in Hong Kong from 12th-14th November 2019. Another event that many major VC firms attend is SuperReturn International, held from 26th Feb – 1st March 2019 in Berlin. In America, there’s also the global conference Start-up Grind on Feb 12th and 13th 2019 in Silicon Valley.
4. Ask for a one minute meeting
When you find the right VC, you can request a one-minute meeting. You would have better success asking for one minute of a VC’s time as opposed to a longer meeting. As you are delivering your pitch, you should observe the investor’s body language. It takes just a tenth of a second for potential investors to form their first impression of you. And it’s practically impossible to reverse this initial opinion. When I speak with entrepreneurs, I always pay attention to their eyes and their facial expression. After years of experience, I can trust my gut feeling if an entrepreneur is genuine and whether he/she can withstand the inevitable challenging times that is to come.
5. Do not settle for the first VC firm that shows interest in you
So you’ve met a couple of potential investors and they are interested in your company. It is tempting to go with the term sheets that offers you the most money and gives your company the highest valuation. However, there are other areas to consider such as whether or not a VC firm can help you expand your network, build a team or boost your reputation. Make sure you evaluate the VC firm from all angles before making a decision.
