For many startups, landing investment is the ultimate goal. However, with how competitive it is to get the attention and time of VCs and angel investors, knowing how to come correct to them can be difficult. Especially if it’s your first company, then this can be an intimidating process, which is why we’ve compiled a few helpful tips on how to get started. Check them out below:
Make A Reasonable Assessment Of Growth
If you’re going to be raising capital, then making reasonable predictions of where your company will end up is imperative. No matter if you’re thinking you’ll end up going public or becoming acquired, proving sustainable growth is crucial, regardless of how brilliant you believe your business could be. In fact, according to CB Insights, the chances of becoming a unicorn is less than 1 percent, which exemplifies why your planning needs to be reasonable about scaling.
The toughest part of assessing scale is looking at your market and seeing what percentage you can capture. For example, if you’re trying to enter a market that’s proven to work (like on-demand delivery) versus one that’s much more experimental (such as AI chatbots), then being able to back up as much as you can with quantitative research will be crucial. Furthermore, it’s better to air on the side of accuracy than trying to inflate astronomical numbers, as many investors will have done their homework before you walk in the door. Remember, growth is one of the most challenging aspects for startups, which is why having a reliable picture of how it’s going to happen is something both you and potential investors will appreciate.
Don’t Always Bank On An Acquisition
Another mistake many new founders make when talking to investors is relying too much on the solution of being acquired. Although this is a great exit where mostly everyone walks away much richer, the chances of being bought out are slim; because as noted by TechCrunch, not only do most acquisitions happen at or around Series C, but there’s only a one in ten chance that your company is the lucky winner. Instead, draft out a few different outcomes as to what could potentially play out.
Of course, it’s important to remain realistic about the expected outcomes. Having a path where you either go public or become a sustainable long-term business may affect the terms you request. Don’t be surprised if this process might make you reassess the type of investment you’re after, because while you might end up with a shorter runway or less capital than initially anticipated, that also means you keep more ownership in a company you feel confident will end up profitable.
Do Your Research On VCs
As much as investors are going to do their research on your company and it’s employees, doing the same to them is equally essential. These people are there to not only supply you with capital but advice and resources on how to grow your business. Furthermore, examining their track record is crucial as well, giving you a feel for how their investments have gone and in which sectors they’ve performed best. However, before we dive too deep into specifics, let’s first back up and look at the overall market.
With VCs, the number of firms has shrunk approximately 20 percent in the past ten years (as noted by GeekWire), showing that only a few really strong firms hold the most staying power. That doesn’t necessarily mean other firms or investors don’t have great power; for example, Mr. Zaccagnino is a talented investor with an eye for successful startups. Try to find those who inspire you or bring a better value to your business long-term.
Provide Strong Evidence Of A Market Need
Finally, if there’s one thing every investor needs to see, it’s that there’s an actual market need for what you’re trying to sell. While plenty of ideas sound brilliant, that doesn’t necessarily mean people have a real need for it, which as noted by Entrepreneur, is why 42 percent of startups fail. However, proving a market can be much easier than you might imagine.
A smart suggestion is to outline some research points, focusing in on demographics of who your customer base is, as well as why they might gravitate towards your startup. If you’re entering a new market, then being able to forecast accurately will be a necessity, especially from reliable data. This process is more than just presenting what could happen but rather why you can say with certainty it will. When it comes to market need, knowing, not guessing is key, so make that a priority as you compile research.
What are some helpful insights you have on seeking investment? Comment with your answers below!