Venture capital is typically offered to high-growth potential companies with a relatively high risk. It offers a return on investment in exchange for equity in the company.
Know Your Investors
Investors, for instance, Brad Kern, want to see your startup has a strategy that differentiates it from existing competition. You should explain how you plan to achieve this. This can be achieved by creating a unique product, business model, or culture. It would be best if you prepared to answer many questions from investors. They will likely ask how you plan to market your business, what you have done to secure funding, and more. They will also ask about your team, your competition, and how you plan to scale. Be sure to research the investors you are approaching. Find out how many companies they have invested in that have been successful. Also, know what their fees are. For example, if they charge 2% of their committed capital each year to run their fund, that’s not a chump change for a startup. This information will help you determine how much to ask for from them.
Know Your Industry
VCs invest in businesses that offer a solid competitive advantage over existing products and services. To demonstrate this, you need to understand your industry well. You need to know the trends, how innovations are implemented, and what influences affect them. You must also be familiar with your industry’s specific terms and conditions, such as your capitalization table — which includes authorized versus issued shares, granted options vs. reserved options, and unvested equity. This document helps you track how much your investors own, the percentages, and whether any unvested equity may dilute future returns.
Develop Your Network
There’s a lot of truth in the saying, “It’s not what you know, but who you know.” This is particularly true in venture capital. Every interaction with a potential client, investor, or mentor can be an opportunity to build a relationship that leads to future business opportunities. VC firms are often more interested in the people behind the startup than in its business concept or product. They’re looking for a team that’s knowledgeable and passionate about the business and can fill any gaps in knowledge or experience. You should aim to get warm introductions when contacting a VC, but if this isn’t possible, feel free to reach out cold. When you do, be prepared with a brief but compelling elevator pitch highlighting your expertise and demonstrating your interest in the business. It should be no longer than 30 seconds to a minute and grab your contact’s attention. Be sure to follow up with a courtesy email or call.
Be Flexible
Whether booking a hotel, grilling a plant-based burger at your local restaurant, or shopping for groceries online, you use products and services backed by venture capital daily. But most people don’t know much about the industry. VCs are more than just checks: They’re the linchpin of an efficient system for meeting the needs of institutional investors seeking high returns, entrepreneurs seeking funding, and investment bankers looking to sell companies. To make the most of venture capitalism, aligning your investment criteria with your values and long-term objectives is essential. One way to do this is by investing in flexible VC structures that offer unique founder alignment. Flexible VC structures typically rely on profit share instead of revenue or profit percentage, which offers less direct investor return and can help preserve founder optionality and growth trajectory. They also tend to be less rigid than traditional equity VCs regarding valuation, liquidation preference, anti-dilution protection, and board control.
