Securing funding for your business is one of the most important steps in launching a startup. You simply cannot get anything done without money. You can always start small and sell to your family and friends, but if you are ready to introduce your startup to the world, you need someone to back you up financially.
Some entrepreneurs use their savings, some take out a loan, while others seek out angel investors. Here we will be talking about venture capitalists: everything you need to know about attracting VC money into your startup, from finding the right VC to pitching your business properly.
But first, let’s define what VC is. Venture capital refers to big-money investments managed by professional investors who are spending other people’s money. Do not say venture capital if you are really looking for angel investors. Angel investors are accredited investors who are investing their own money.
Venture capital is the hardest type of outside investment to secure because it comes from extremely wealthy people, insurance companies, big corporations, etc.—and they usually come in millions of dollars. Angel investment is much more likely to be in hundreds of thousands than in millions of dollars.
So before you look for the right VC to fund your startup, learn the difference between the two and find out which one your company really needs.
With that out of the way, let’s talk about how to get venture capitalists to fund your startup. The process is way more difficult than getting funding from friends and family, and it always takes much longer than you expect. It may or may not work out in the end, but here is how to increase your chances of success.
For starters, you need to have your business plan ready before you work on your pitch. It’s true that sometimes investors will reject your business without reading your plan. But they won’t invest in it without reading the business plan. This is called due diligence, and your business plan will serve as the active document for that. Prepare your business plan before working on your pitch.
Usually, you are asked to send a video or summary and then wait to be invited to pitch. If you do get an invitation, it is your chance to share your story, tell them about your startup, and explain why you should receive their help.
Once you are ready to give VCs your pitch, make sure you have an extremely good tagline and an instant summary. The old 60-second elevator pitch isn’t going to cut it. Instead, you need to be able to catch their attention within your first two to three sentences. 60 seconds is too long. Describe your business in a few intriguing sentences. The rest of the pitch is all about fleshing out the details and keeping their attention.
While the pitch is certainly important, don’t think that success or failure depends on it entirely. What matters more to investors is the story, the credibility, and their assessment of your startup’s prospects.
Be patient because due diligence alone will be several months of unending requests for more documentation.
Pitching your business is an art form. But before you get to that point, you need to find venture capitalists first. It all begins with research.
First you need to understand which VCs are a good fit for your company’s goals. You can only score meetings by creating a targeted outreach list of firms that are aligned with your business. Unless you already have some connections, you will do most of your research online. LinkedIn is a good resource because it is the biggest platform online for building professional and business relationships. You may find several VC firms here.
Create a list of VCs that are a good fit for your company. Remember, all venture capitalists have a specific focus when it comes to the kinds of companies they fund. Some invest mainly in software, in consumer products, in AI, etc. It would be pointless to reach out to a VC firm that is not interested in your type of business in the first place.
Try to create a roster of VCs that are likely to be interested in the kind of product or service you are offering. Make sure you include firms that have a track record of investing in your industry.
Another thing to consider is the stage of financing that you are currently in. Figure out if a VC firm you listed is actively pursuing deals in your stage.
Check out the individual websites of different venture capital firms: they often share their investment ethos or criteria there. Just by looking at their website, you can tell if your business is qualified. Another good way to determine if your company fits within a VC’s investment ethos is to review their recent deals. These can also be found online.
VC firms are transparent about the types of investments they make, so use this to your advantage. You can even research similar businesses and find out which firm invested in them.
Lastly, consider your location. There are firms that invest beyond their city and state, while others only invest locally. When applicable, be sure the firm makes out-of-state investments before sending an email.
You know how to find them and you know how to pitch: but getting the opportunity to present that pitch is the tricky part. They say that “the deals chase the money; the money doesn’t chase the deals.”
This is the part where you start chasing the investors. Avoid email templates like the plague—because apparently, investors hate receiving them, just like how most people hate receiving spam emails. Most investors don’t read summaries or watch a pitch when it looks like it is being sent in bulk to multiple investors.
Personalize your emails. Kennected is a LinkedIn automation tool that lets you set up automated messages and personalize them so that they don’t look like spam. Kennected simply makes the process of sending these messages easier. You can even use Kennected to help you find leads using LinkedIn’s data-rich filters.
Kennected understands the importance of sending personalized emails to individual investors.
Once you have your target list, it’s time to secure those meetings. If you have a mutual connection from your business or personal network, that can work in your favour because VCs are more open to deals that come from trusted sources.
Ask your team if any of them have people in their extended network who have VC relationships. You can even utilize Kennected and LinkedIn to connect with VCs in your area, to make the process easier.
If you don’t have direct connections, you can still reach out to them via cold emails. In your email, mention why that VC is most likely to be interested in what you have to offer. Personalize it according to their interests and previous investments.
Finally, be direct and concise. You want to get to the point quickly because people have short attention spans. If your email can’t catch their attention, then your pitch probably won’t work on them either. Everything from your subject line to the layout of the text should be clear and direct to the point. Explain why your company is relevant to that particular VC.
Be patient and know that this process takes a long time. You are securing a large fund for your startup after all. It’s all going to be worth it.
Book a demo with Kennected today to learn more about how it can help bring you a steady stream of connections, sales, and appointments.