As the founder of a startup, you are probably fundamentally aware of the inherent difficulties associated with the process of securing funding for your early stage venture. Further complicating the matter is the fact that the way venture capital firms evaluate a potential investment has undergone substantial changes in recent years.
So before you begin working to secure a meeting to pitch a venture capital firm, there are several steps you must take. Your first consideration is determining whether or not venture capital is the ideal source of funding for your startup. Once you have made this determination, you can then move on to the seven mandatory steps that follow, which will ensure your startup is positioned for long-term success.
Create a Plan for Venture Capital Utilization
Once you have secured the funding requested from a venture capital firm, what precisely do you plan to do with it? You must be able to clearly delineate how you plan to use the capital you are requesting. You must demonstrate the specific benefits that will be generated from an influx of funding.
Without a specific utilization plan in place, you simply cannot expect to secure funding from a venture capital firm. Developing such a plan will also help clarify whether or not you even need to pursue venture capital in the first place.
Confidently Invest Your Own Success
There is no way you can credibly ask for funding from a venture capital firm if you are unwilling to invest your own resources first. When you are requesting someone else to be your backer, you have to demonstrate your own commitment to your own idea.
In a literal sense, this means that you are able to demonstrate to potential investors that you are fully invested in your startup’s future. There should be no fallback option, and therefore no scenario in which you begin a sentence with “if this works…”
When you meet with a venture capital firm, the fact that you are wholly invested — financially, personally, and professionally — will make it clear that you are operating from a position in which success is your only option.
Secure Funding From Those Who Know You Best
Venture capital firms will certainly want to work with you if you believe in yourself and your idea so much that you have a significant financial stake in its future success. It is also important to demonstrate that those closest to you believe in your concept enough to invest too. Securing funding from friends and family will allow you to prove the viability of your business plan to future investors by demonstrating that the people who know you best believe in you and your startup.
Establish a Foundation
Venture capital firms are looking for high-upside, low-risk investments. A startup in the developmental stage represents too much risk to be worthwhile for venture funding. Instead, build a foundation of success with the funding you’ve already raised so that you are able to meet with risk-averse investors once your startup is firmly established.
Be Open to a New Financial Structure
It is critical to recognize that a venture capital firm is not merely “backing” your startup; the majority of firms are looking to make an investment in a joint venture, which is often more akin to a partnership. When presenting a potential opportunity to a venture capital firm, it is best to remain open to different financing structures and the potential enhancements a firm might request. This also means that you must be prepared for the venture firm to take financial control of your business if they make an investment. These potential structures should offer benefits that appeal to both parties.
Demonstrate Your Company’s Viability
When you work with a venture capital firm, it is critical to take steps that ensure you secure a deal in which you are able to maintain control over your company. You can mitigate the perceived risks associated with your startup by proving the short and long-term viability of your business model. Generating revenue is perhaps the most straightforward strategy for proving the viability of your business model.
Identify the Ideal Venture Capital Partner
It is worth reiterating the fact that venture capital firms are investing in a partnership with you and your startup. It is also the case that most firms want to be able to exert some level of control or have some kind of influence over the company in order to protect their investment. Make sure you are keenly aware of which firms are most likely to align with your short and long-term business goals before you begin asking for funding.
By following these seven steps, you’ll increase the likelihood of introducing an unnecessary risk that might eventually undermine the success of your securing startup venture. Pursing venture capital can take up to two years, so this is not way to get funding quickly. Have a plan for how the funds will help your business, make sure your business is making money before you start pitching, and do research of how the venture firms operate and the types of investments they make, so that don’t waste your time.
About the author
Kareem Elsirafy is known as Entrepreneur and organizational architect, He providing expert strategic planning advice by leveraging his unique understanding of causal relationship economics as well as operational design.