For startups and SMEs, fundraising with Venture Capital (VC) investors is challenging.
The reality is, Venture Capitalists hand out hundreds of rejections every week.
In fact, an interview from Sifted revealed that there are less than 100 acceptances granted across the span of a whole year.
However, nothing good comes easy. Venture Capital investment is a major catalyst for startup growth, so it’s important to figure out whether your pitch is ready to stand the VC test.
Below, we’ve discussed some trip-ups that commonly lead to that gut-wrenching “no”.
By recognising potential flaws within your pitch, you can get an idea of the steps you need to take to achieve success with VCs. In turn, if you’ve already got these bases covered, you might be ready to go full steam ahead.
Match your business with the right firm
Just as you’d want your favourite teacher to mark an exam, startups should be certain to approach VC firms that are more likely to see the genius in the product or service they’re selling.
Take the time to dig into different Venture Capital portfolios online and see what industries they prefer to take on. By directing your idea towards a firm that already has shares in companies that can benefit from your product, they might have more of a reason to say yes.
Another fundamental step for startups is to identify which funding round they fall under. Pre-seed companies who blindly approach large Venture Capitalist firms will hit a wall early on.
Typically, VC investment is associated with Seed and Series A funding, raising capital ranging from £150k - £15m.
Having said that, each firm is different, and you should always make sure that the Venture Capitalists in front of you favour the position of your business.
For example, Fuel Ventures specialises in Seed funding, so a startup pursuing Series A (upwards of £2m) would be better received elsewhere.
Does your product or service offer something new?
Venture Capitalists are not looking to invest in companies that fade into an oversaturated marketplace. An unexcited, crowded market is a clear red flag, even with a great business plan and a talented team.
Countless startups also fail to achieve Venture Capitalist investment because they’re too similar to an existing product or service.
VCs are on the hunt for ideas that revolutionise their industries. For example, think about how Uber, Deliveroo and Tesla totally disrupted the status-quo for public transport, food delivery and automotive vehicles.
One way to get a rough idea of whether your business is offering something new is to consider:
Have you developed a technology that no one else has?
Is your product/service difficult to replicate?
Can you fulfil a market gap large enough to generate significant outcome?
Have you uncovered a novel monetization strategy?
Do you have a plan?
Though VCs take a more hands-on approach than early-phase investors, they don’t want to be spoon-feeding founders.
As a company who is ready for Venture Capital investment, you should be able to tell investors exactly what will happen with their investment and what the results will be.
Evidently, founders must present a calculated business plan, with all assertions backed up by figures and metrics.
When it comes to financial projections, there’s a certain sweet spot. Underwhelming numbers may turn Venture Capitalists off, but equally, unrealistic turnover expectations show that you’re not being realistic.
This all-important aspect of your pitch is where a trusted accountant can step in, making sure your existing figures show an accurate depiction of your business's current position and providing the right kind of projections to highlight reliable growth.
For too long, accountants have been detached from the fundamental goal of small businesses – to build, grow, and scale.
Our experts at Jump Accounting want to change this.
Jump surpasses your traditional accountant by integrating expert knowledge of the startup ecosystem to provide SMEs with growth-focused accounting.
Do you have a stable, well-rounded team?
A guaranteed way to leave a Venture Capitalist without securing capital is by giving the impression that you and your team would be hard to work with.
During Seed and Series A rounds an investor will become more involved in the running of your business. This means that VC investment requires close, frequent contact and a long-term business relationship.
If you don't initially develop a good relationship with potential funders, this ongoing relationship might be difficult for them to envision.
A founder that’s ready for Venture Capitalist investment will demonstrate a hunger to grow and a willingness to adapt alongside the business.
Alarmingly, some founders attempt to enter a high-growth scenario such as VC investment but show no desire to change any aspect of their business. The two simply cannot coexist.
These are high-stakes operations, where VCs expect to see significant commercial transformation within a fairly short time frame. So leave overly rigid attitudes at the door.
Part of the Venture Capitalist deal is the exchange of equity for capital, so you need to go into this willing to hand over partial control.
If you show resistance when it comes to advice or instruction, or if you’re not to offer up shares of your enterprise, Venture Capital funding isn’t for you.
This is a partnership. Be charismatic, be flexible and be forward-thinking.
Remember, VC funding is difficult to come by, so don’t be disheartened if it’s not quite your time. Most viable businesses never surpass the Seed round!
All in all, Venture Capitalist investment is based on; your needs in an investor; your business model; your business plan; and you.