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Knowing what venture capital firms want to see rather than what you want to show them is essential to build trust and to controlling the initial discussion. Irrespective of whether you are looking for $100,000 or $10,000,000 your collateral will typically need to include
- Introduction
- Company Background
- Market
- Opportunity
- Details of Service
- Financial Model
- Management Team
- Competition
- Risks
- Executive Summary
- supported by any and all of:
- marketing plan
- marketing collateral
- operating plan
- website screenshots
- detailed management resumes
- organisational structure
- supplier list
- terms of business
- press coverage
- market research
- investment requirement
- exit strategy
Beyond The Obvious (Seductive Rapport)
OK, you have the basics, how do you create a siren call not a whimper to your proposition? Here is a collection of insights from over 75 businesses that have been recently funded. Pick those that best suit you:
- Tell investors about the quality of the product/services and how it helps dramatically improve people lives, the communities they serve and the world we live in
- Tell investors about the credibility and success track record of the company’s principals, not forgetting lessons learned from past failures and response to highly ambiguous situations
- You need a story about the brand. What does it stand for? And a chapter of the story is about value in potential markets, not just growth in current markets
- You have to create a human problem fixed, a human need satisfied, a human spirit kindled.
- You may not be able to find an investment guy’s heart but you can find the public’s soul (affiliation, challenge, collegiality, excitement)
- The principals experience with failure and what they plan to do if this doesn’t work.
- Demonstrate the firm’s principals have skin in the game including “love money” (family, friends and associates)
- Bring hard evidence: contracts with customers, letters of intent, memorandums of understanding, and other formal documentation to show customer interest.
- Talk about supplier relationships, history, stability, scalability. Failure might not be your fault but equally, you need to have both preventative and contingent actions in place for obstacles that arise from your relationship with your suppliers.
- Proprietary intellectual property, demonstrate trademarks and patents.
- Sustainable competitive advantage, where is your evidence?
- Can your investment proposition be tailored to suit the audience? Investors come in different shades of grey, your flexibility is paramount to drawing them in.
- Exit strategy, what is it precisely?
- Board positions for major investors, who is the ideal Board member (skills, behavior, expertise)
- Common shares convertible to preferred shares if targets aren’t met.
- Industry specific risks: government and political risks, regulation, distribution, security criteria, foreign interests and so forth.
“Basically, more than two and half sides of paper and enough to give a fullflavorof the proposition. VCs will see dozensof plans each week and the key is to demonstrate that you know what you are doing and that includes how you will make your investors rich!”
If the mere thought of generating this information leaves you cold or exhausted, you can confidently rule out soliciting help from or expecting support from venture capital firms.
Other advice for startups seeking funding:
How Hyper Local Startups Can Secure Investment from Their Neighborhood To Power the Reemergence of ...Obtaining Venture Capital FundingRaising Capital: How Much, When, From Whom?Bigger, Not Better -- When Less is More for Venture-Backed Startups
James Berkeley is a global expert and adviser to corporate venture capital, venture capital and High Net Worth investors seeking dramatic growth investments. He is great at and passionate about turning strategic visions into an organisational reality, beyond merely raising capital. James provides expertise, speed and tremendous results for owners and top management in high-growth businesses who want to soar, not simply coast.He is known for his Profitable Growth Regime. A pathway that brings greater focus and discipline to all levels of the firm and greater resolve to see that key business goals are attained with minimal need for management intervention.James’s wisdom has been sort by the owners and key personnel in an array of early and mid-stage high-growth businesses during his career including HotelCloud, Coffee Planet, FTT Global, Napster and Direct Money. Website: www.elliceconsulting.com Blog; www.jamesberkeley.com
About James Berkeley
James Berkeley is a global expert and adviser to corporate venture capital, venture capital and High Net Worth investors seeking dramatic growth investments. He is great at and passionate about turning strategic visions into an organisational reality, beyond merely raising capital. James provides expertise, speed and tremendous results for owners and top management in high-growth businesses who want to soar, not simply coast.He is known for his Profitable Growth Regime. A pathway that brings greater focus and discipline to all levels of the firm and greater resolve to see that key business goals are attained with minimal need for management intervention.James’s wisdom has been sort by the owners and key personnel in an array of early and mid-stage high-growth businesses during his career including HotelCloud, Coffee Planet, FTT Global, Napster and Direct Money. Website: www.elliceconsulting.com Blog; www.jamesberkeley.com
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FAQs
Typically, VCs raise a fund by soliciting contributions from outside investors. These third-party investors become limited partners in the fund. Your fund's LPs will remain passive, while you as the fund manager will make the day-to-day investment decisions.
How to raise capital for VC? ›
Typically, VCs raise a fund by soliciting contributions from outside investors. These third-party investors become limited partners in the fund. Your fund's LPs will remain passive, while you as the fund manager will make the day-to-day investment decisions.
How much capital do you need to start a VC fund? ›
The cost of starting a venture capital fund can vary widely depending on factors such as fund size, office space expenses, management fees, and investment strategy. Typically, it is recommended to have a starting amount of at least $100k to cover initial costs and operational expenses.
How can I raise my startup capital? ›
Looking to raise capital for your startup without giving up equity?
- Bootstrapping: Start with your own funds and reinvest profits to grow your business.
- Crowdfunding: ...
- Grants and Competitions: ...
- Business Loans: ...
- Strategic Partnerships and Corporate Sponsorships: ...
- Revenue-Based Financing: ...
- Vendor Financing: ...
- Invoice Factoring:
You'll need to convince them that your business plan, market focus, and management structure show potential for growth and success. It's common for entrepreneurs seeking VC funds to have a pitch deck—a visual presentation that includes information about your business, the market, your growth potential, and your team.
What are the odds of raising venture capital? ›
If you have solid traction and a great team, are your chances significantly higher than 0.05% and will you find at least one investor if you keep hustling? This is a case where statistics are misleading. The overall odds of raising venture capital may be 0.05%. And goodness, there are just so, so many start-ups today.
Where do VC firms get their capital? ›
Venture capitalists usually raise money for their funds from various outside sources, such as institutional investors (pension funds, endowments, and foundations), corporations, family offices, and high-net-worth individuals (HNWIs).
What is the average ROI for a VC fund? ›
The median net investment rate of return for 2021-vintage venture funds was 2.1%, compared with 12.3% for 2020 funds, according to analytics firm Preqin, which surveyed results from investment firms backing early-stage and late-stage private companies.
What percentage of startups get VC funding? ›
Only 0.05% of startups get VC funding.
How big are first time VC funds? ›
Size of New Corporate VC Funds
The average size of new, first time CVC funds in 2023 was $146 million, with a median fund size of $100 million.
- obviously the starting point is to ask yourself how much money you'll need until the next milestone. It's best if you can raise at minimum 12 months' cash and even better 18 months' cash. 24 months for most tech startups is usually too much money.
How do I ask for startup capital? ›
Once you have a business plan, you can start approaching potential investors, including friends and family. One of the most important things to remember when asking for money from anyone is to be clear about what you're asking for. Be specific about the amount of money you need and what it will be used for.
How long does it take to raise capital for a startup? ›
Getting a yes can easily take six months; a no can take up to a year. All the while, the emotional and physical drain leaves little energy for running the business, and cash is flowing out rather than in. Young companies can go broke while the founders are trying to get capital to fund the next growth spurt.
How difficult is it to get VC funding? ›
A Quick Guide to Startup Funding. Raising money from a Venture Capital (VC) firm is extremely challenging. The odds of receiving an equity check from Andreessen Horowitz is just 0.7% (see below), and the chances of your startup being successful after that are only 8%.
How do I raise my first VC fund? ›
How to raise your first fund
- Understand the venture game.
- Build “proof of taste”
- Find a partner (or go solo)
- Validate your right to exist.
- Prep your materials.
- Set a timeline.
- Pitch, pitch, pitch.
- Find someone you know that knows them; LinkedIN is a great tool for this. Ask around. See what college/university they went to. ...
- Once you find that person, see if you can get them to make an introduction… a real one. ...
- Fallback to that is to find out where the VC might be at a point in time… and be there also.
In conclusion, when seeking funding for your startup, it is highly recommended to first try finding a personal lead who can connect you with the VC/investor. If that proves challenging and you cannot establish such a connection, then proceed with writing a personalized and precise email to the investor.
How do you pitch for VC funding? ›
Keep your VC pitch short, easy to scan and packed with valuable information
- A clear explanation of the problem your product or service is solving.
- The size of your market and potential competitors.
- Growth models.
- Evidence that your team can pull it off.
Startup funding: Six ways to attract venture capital
- Market validation before fundraising. Prioritize market validation before seeking funding. ...
- Understanding the VC perspective. ...
- Refine your pitch deck and practice your pitch. ...
- Building relationships and network. ...
- Solid business plan. ...
- Team and execution capability.
The average startup now takes over 2 years to raise a Series A after their priced Seed round. That same figure is 844 days between A and B rounds, and a whopping 1,090 days between Series B and Series C.
