I recently had the chance to sit down with Taylor Davidson while he was in town for Tribecon. Davidson is a Senior Associate at kbs+p Ventures, responsible for sourcing and vetting deals. Having coached many entrepreneurs on how to raise capital, he offered our readers the following advice:
- Start talking to investors early. The earlier you bring them into the process, the better they will understand what you’re doing and see the shifts you make over time. They will feel a part of the process in building the company and become much more comfortable working with you.
Although you want investors to be a part of the process early on, you also want them to be able to see things progress. If you’re not going to be able to make a measurable impact within about a 30 day time frame, then it may be a bit too early. This, however, doesn’t mean that you shouldn’t go out and try to meet investors and seek friendly advice.
- Talk to other entrepreneurs. Ask other entrepreneurs who have raised capital how they did it. Learn from their mistakes and value their advice and guidance. Also, leverage their network and seek introductions.
- Research venture capital firms. All firms have defined investment theses that describe the type of criteria that they look for in their investments. Seek firms that are a good fit by stage, focus, area, etc. You should also be aware of potential conflicts. VC’s avoid investing in competing companies.
Another reason why it’s so important to research your investor is because you’re taking on more than just capital; you’re bringing on a partner. And it’s a partnership that will last for a long time. They’re going to be there for 3, 5, 7 years. You want to have a strong understanding of who they are and be comfortable with their management style and focus. Thankfully, the Internet is a great tool to find all this information. Use it.
- Identify the top 10 funds that you believe will be great investors (i.e. partners). List potential lead investors, syndicate investors, angels, etc. You can then build off your network and ask for specific introductions to firms on your list. Obtaining a warm introduction is always the best way to get your foot in the door.
CAUTION: One of the worse things to do (once you’ve made this list of top 10 VCs) is to target your first 1 or 2 right off the bat. The first time you pitch is not going to be very good, especially if you’re very early on. Once you’ve gotten some initial reactions, go back and improve on this feedback, and then you can go after the investors you really want. Save your best potential lead for when you’ve really perfected your pitch.
- Make fundraising a part of your job. If you’re a high growth startup, chances are you’re going to need investment capital. Unfortunately, the fundraising process is very difficult and can take a long time. Don’t wait until the last minute. Allocate time to it each month like you would any other job function.
Doing your homework and having a very focused, targeted approach will go a long way in gaining attention and successfully obtaining venture capital.