Securing venture funding for a startup is undoubtedly a challenging process for a young entrepreneur. With only .05 percent of startups funded by VCs, every entrepreneur is likely to experience a healthy dose of rejection. The experience can be pretty humbling, especially for young entrepreneurs who assumed their brilliant idea would be a no-brainer for investors.
I began fundraising for my ed-tech startup, Flashnotes.com, right out of college. I’ve since raised more than $11 million in venture funding, though I first had to learn a few tough lessons of my own in order to convince a room full of seasoned investors that supporting my idea was in their best interest. Mistakes like limiting the list of my industry competitors to other small startups rather than the billion-dollar companies in the industry caused investors to question the company’s viability (and earnings potential). They wanted me to prove that Flashnotes.com would shift the balance, rather than create the balance. I even made the mistake of going to a presentation without creating a proper financial model, which led to a venture capitalist actually getting up and leaving in the middle of my pitch after declaring, “I’m only looking for home runs.”
Through all the ups and downs of the fundraising process, it became unequivocally clear that with so many great startups, the competition for funding is also greater than ever, which means you really need to differentiate yourself. So, before you head into that boardroom, presentation in hand, I have listed a few pieces of advice to consider.
Don’t Be Afraid of the Tough Questions
In my experience, if you walk out of an investor meeting thinking, “Wow, that was easier than I thought,” it probably didn’t go well. Instead, look for VCs who ask the questions that make you sweat — the ones who keep you up at night. If a VC is truly interested in writing you a big check, the negotiations are going to start right in that first meeting.
Show Them the Money
When talking with VCs, make sure you target or at least relate your market opportunity to existing dollars. Don’t just rely on being “disruptive” in your industry — no business can create money out of thin air. Make sure you convey a clear and scalable forecast of exactly where your dollars are going to be shifting. A thoughtful financial projection will show how well you understand the opportunity within the market.
Embrace the Competition
Do not be afraid of, or hide from, your competition. Embrace it and use it as a way to prove the market is hot. Target the bigger players in the market too. As much as no one wants to compete head-to-head with the Googles, Facebooks and Microsofts, it is almost worse if these guys have absolutely no interest in your space.
Know Your Audience
Finally, it is very important to have a clear understanding of exactly who you are pitching to. What makes them tick? Before you even walk into a meeting, you should research the answers to questions like, “Are these VCs looking for growth-stage investments?” VCs report to limited partners, who are pitched on targeting certain trends (like green, mobile, education, etc). Do your research and make sure you are aligning with these sectors prior to meeting.