By Benjamin Chong
When it comes to attracting VCs, founders often make mistakes when trying to grab their attention and can end up wasting a lot of time and effort. Having been on both sides of the fence as a founder and investor, I know that time is your biggest asset.
While fundraising is an essential step, founders need to be judicious with their time and ensure enough efforts are spent on building their product. To help founders optimise the time it takes to get funding, here are four easy steps they can take to turn a VC’s head.
Step one: engage through a trusted source
The best way to get to know someone is by being introduced through a common connection, preferably a trusted source. This connection can be made by being introduced through an existing start-up in that VC’s portfolio or by getting to know key individuals in your sector who are connected to individuals within a VC firm.
When making introductions by email, I usually provide a brief background on each person, along with a reason they should make contact with each other. I’ve found that, by providing context on the introduction, the greater the chance of a successful interaction between the parties.
Step two: have a clear ask
When contacting a VC, be clear and straightforward about your ask. Instead of making a suggestion to meet over coffee, state whether you’re after feedback on your pitch deck or wish to learn how to grow your business in international markets. If your purpose in meeting a VC is for funding or mentoring, don’t be afraid – just say it! By having a clear purpose, you’ll increase the chances of high-quality conversations with VCs, plus make it easier for them to refer you to someone else if they can’t personally help.
If you’ve presented yourself clearly and you get an early no from a VC, it probably means you weren’t the right fit for them.
Step three: present interesting opportunities
When meeting with VCs, don’t come empty-handed. The best way to pique a VC’s interest is by showcasing your current achievements and future opportunities. Be proud of your record month of sales. Share how many users you’ve attracted and their experiences, both good and bad. Discuss your revenue model. Explain how you’re able to achieve more growth with additional funding and the key metrics you’re tracking. Paint a picture around how your key metrics support your forecasts and show where you’ll be after you’ve spent the new funds.
Demonstrate a deep understanding of your market, both locally and in key geographies, whether it’s sizing the addressable market (the total revenue opportunity for your business) and available market (the portion of the addressable market that you can realistically compete for). If you have paying customers, describe how you came to set prices and how you’ve tested price sensitivity.
Breathe Well, a medical technology company incubated at the University of Sydney, caught my attention a few years ago by presenting compelling statistics about the positive impact they had on patients undergoing cancer radiation therapy at an Incubate Demo Day. A meeting shortly followed, with one of our funds leading an investment in Breathe Well.
Step four: do your homework before meeting
Not all VCs are the same. Most will focus on an industry sector and won’t invest in businesses that don’t fit, regardless of how promising they might be. For example, if you are a founder of a successful hardware start-up, you may be wasting your time securing a meeting with SaaS-focused VCs, unless they also have interest and experience in hardware. Reviewing an investor’s portfolio will give you a clue around sector preferences. It’s a good sign if they have existing investments in comparable businesses.
Similarly, understanding the stage (or cheque size) of an investor will improve your targeting. Most VCs provide capital to startups only at limited stages of funding, whether it be seed, series A, series B or beyond. If you’re raising a seed or very-early-stage round, you’ll be unsuitable for an investor who prefers writing larger series B cheques. Instead, you’ll want to find a VC who likes investing in seed-stage rounds and has the capacity to participate in later rounds as your business grows. By targeting VCs with both the right industry sector and stage fit, the more likely you’ll be able to increase your chances of securing productive meetings and funding.
View the original article on the Australian Financial Review. Twiddle your thumbs at Benjamin on Twitter(@benjaminchong)
For more startup advice and great reads on the APAC and global tech scene, follow Right Click Capital on Twitter (@RightClickVC).
