Raising Venture Capital? Seven Things You Need To Secure Funding
By Manny Larcher
5.2 minute read
For many startups, raising venture capital is a sound funding strategy. Compared to financing your business through bank loans, personal savings or investments from friends and family, there are many benefits to securing VC dollars. Venture capital can provide credibility, built-in business advisors and the ability to scale quickly, among other things.
But securing venture capital is difficult—less than 1 percent of startups successfully obtain investment capital—so putting your best foot forward is important. There are a few non-negotiables that every founder should have squared away to increase their chances of success.
A Strong Team
Investors are looking for innovative businesses reinforced by a strong and capable team with relevant expertise, experience and track record. Potential financers need to know that your team can execute business strategies and overcome challenges. When pursuing investors, be transparent – spell out the aspects in which your team is strong and areas you may need to augment.
A Clear Value Proposition
It is crucial to communicate your startup’s unique value proposition to VC funders. A positioning statement that describes your target customers, the problem you’re solving and what distinguishes you from alternatives, creates a compelling value proposition and it’s more an art than a science. A value propositions can also help your team orient itself around your purpose. Think about the following formula to get started:[Your startup] provides [target audience] a [solution] in the [specific market] because of [your differentiating factor].
For more on how to write a value proposition, check out these step-by-step instructions.
A Realistic Valuation
As a founder, you should have a clear understanding of your company’s valuation. An overvalued company may deter investors, while an undervalued company may leave money on the table. There are several ways to evaluate your company’s performance and progress, but consider these key metrics:
- Revenue: Revenue is one of the most obvious indicators of a company’s financial health. Track your monthly, quarterly and yearly income and set goals for growth.
- Profit margins: Profit margins are the difference between revenue and expenses. Maintain healthy profit margins and identify areas where you can reduce costs to increase profits.
- Customer acquisition cost (CAC): CAC is the amount it costs to acquire each new customer. Keep your CAC as low as possible and determine ways to increase customer retention and referral rates.
- User engagement: User engagement metrics help you pinpoint areas of improvement and drive user retention.
- Market share: Monitor your market share and identify opportunities for growth, like expanding geographically or offering new product lines.
- Team performance: Evaluate the performance of your team. Set goals, provide training and mentorship, and create a culture of accountability.
A Plan For Using The Funds
Investors want to know your team will be good stewards of their money. Before signing on, they need to know how the investment funds will be used to drive growth and create value. Laying out a clear path forward with associated milestones and how the VC funds will impact your business is vital.
A Network Of Advisors
Having a team of investors and advisors to act as a sounding board can be beneficial when raising capital. They can provide valuable insights and introductions and help build credibility for your company.
A Professional Pitch Deck And Data Room
Your pitch deck—a high-level visual presentation summarizing need-to-know information about your business—will be your main tool for generating interest among potential investors. It should clearly articulate your vision, mission, target market, competitive landscape, growth strategy, financial projections and other essential details. For more on creating a compelling pitch deck, check out this helpful guide.
If your pitch deck piques their interest, VC firms will request access to your data room – a secure, virtual collection of documents that substantiate your business strategy and pitch deck. The data room can include information on sales metrics, staff, intellectual property, balance sheets and more, and assists investors during the due diligence process. For more on what to include in your data room, check out this comprehensive list.
A Strong Set Of Communication Skills
Fundraising involves a lot of communication and negotiation. Founders should be able to both clearly articulate their vision and business strategy, as well as negotiate terms. Be sure to do your research, practice your pitch and approach each conversation with confidence. Most importantly, be authentic. As the founder, you are as much an asset to your startup as anything else. A lot of VC firms—including JumpStart Ventures—look for visionary, industrious founders in addition to high-potential, innovative companies.
As the great inventor, Alexander Graham Bell once said, “Before anything else, preparation is the key to success.” With these essential elements in place, you will be ready to start raising capital to scale your startup.