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7 Fundraising Tips for Startups Pursuing VC Money

In this article you will find  a collection of fundraising advice geared towards pitching a traditional Venture Capital Firm.  Most of Joe’s advice, however, would apply just as well when using an Online Portal or pursuing other fundraising avenues. To summarize the efforts in relation to online portals: find the right Portal with the right investor base for your offering, present the material in an easily digestible and engaging format, follow through, and don’t stop your other complimentary efforts. If you think your company is right for VC Funding then here are Joe Bartlett’s seven key pieces of advice:

Rule #1: Pitch the Appropriate Audience

VC funds collect huge sums of cash, and managers must put it to use within four or five years, or risk losing it. Despite their vast resources, venture funds’ staffing is generally lean and mean — managers cannot afford to look at investments that involve, from their perspective, trivial amounts of funding. If you’re looking for very early-stage funding (the so-called “angel round”) or financing under, say, $5 million, don’t go to a professionally managed venture-capital fund. Find angel investors instead. They specialize in taking a company from inception to the next round of financing.

Rule #2: Don’t Insist on an NDA

Never ask professional investors to sign a nondisclosure agreement (NDA) up front. They won’t do it. VCs will immediately view you as a rookie if you insist on an NDA before they’ve even reviewed the materials, and that will undercut your position from the start. If there is sensitive information in your business plan, don’t provide it at the start. Once you’ve garnered investors’ interest, you can start to let them in on the secret. Some VCs will sign an NDA but only after they’ve made up their mind to invest – and that’s many meetings down the line.

Rule #3: No “Cold Calling”

Don’t bother submitting business proposals over the transom to the VCs. You will be wasting your time. You must find a contact, a midwife, who knows the investor to introduce the opportunity. Unsolicited business plans are returned just as quickly as first-time novels. [Take this rule with a grain of salt. Every company is different, and for some (especially if your numbers are good) a cold call approach can work. For a great take on how to get VCs to notice your company see this post by a seasoned VC].

Rule #4: Keep Your Pitch Short

Venture funds receive hundreds of business plans every week. The longer the plan, the more likely it will be put aside for later reading that often never occurs. Never submit a full business plan to a VC. A three-page executive summary is the outer limit that they will read.

Rule #5: VC Money is Nervous Money

After the Dot-com meltdown, no individual wants to be the next bozo, sinking millions into a boo.com. VCs look for a low burn rate, a solid revenue model grizzled management and partnerships with genuine strategic value. This anxiety has ushered in lower valuations. It is a waste of time, and potentially off-putting, to even discuss an overly aggressive valuation for your business.

Given the recent performance of certain venture-backed companies in the public markets, VC’s in general are skeptical.

Rule #6: Follow Through on Interest

Don’t count on the VCs to get back to you on their own. Keep in touch. The trick is to stay just this side of being a pest. Many entrepreneurs have a “good meeting” with the VC and begin to count on receiving cash, neglecting other sources of capital. You haven’t gotten to “yes” until the term sheet has been initialed and the VCs’ lawyer has started to do due diligence. Until then, keep looking.

Rule #7: Don’t Stop Looking for Investors

There’s a corollary to the last point: Remember that, until the company is public or is sold (sometimes even after it becomes public), you must continuously hunt for investment capital. Every executive must be on the alert, looking for sources of money. Don’t neglect or delegate this obligation.

First-preferred stock is an equity ownership that has seniority over preferred and common stock, particularly with respect to dividends and assets. First-preferred stock is also superior to second-preferred stock, but is subordinate to debt holders.

Did you like these tips? Are you actively raising capital for your company? If you’re considering using an Online Portal we’d love to discuss whether ACE Portal is right for your offering. For other non-VC strategies see this post.


VC Experts provides powerful data on the financing of private companies, along with industry-leading content on fundraising. We conduct exhaustive analyses of all state and federal regulatory filings by private companies. Information gathered by VC Experts includes valuations, share prices, terms and conditions, board members, and behind the scenes details for improved deal context. We maintain an online library of 6,000 articles and more than 300 downloadable forms commonly used to construct private equity investment agreements. VC Experts has become an indispensable resource for entrepreneurs, investors, lawyers, and various services provides in the venture capital and private equity industries.

 

Joe BartlettJoe Bartlett

Founder and Chairman of VC Experts,

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