Some budding entrepreneurs have unrealistic ideas about how easy it is to capture the attention of venture capitalists. Individuals may spend weeks perfecting their marketing materials and expect their polished products to make an immediate impression, but the sad fact is that many venture capitalists do not have the 15 minutes that it would take to look them over.
When entrepreneurs have connections to venture capital firms, they may get their foot in the door relatively easily, but for the novice, getting noticed takes a great deal of determination and perseverance. By following the tips below, individuals can increase their chances of getting noticed and, more importantly, securing the funding they need to launch and expand their businesses.
Figure out which firms may be a good fit.
When looking for venture capital, individuals need to find investors who are both interested and experienced in their industry. A great way to get a sense of which firms to approach is to look at other successful companies in the space and investigate who funded them in their earliest stages.
CrunchBase maintains an extensive history of investments in various companies. Entrepreneurs need to remember that firms will not invest in a competitor to a current portfolio company, so entrepreneurs need to carefully consider how to differentiate themselves from companies already working in the niche.
Ideally, individuals can find venture capitalists interested in their industry with a clear hole in their portfolio that their company could fill. Complimentary companies ultimately make a portfolio stronger and prove better sells.
During this stage, entrepreneurs should ask themselves if they truly want a venture capital investment, since firms tend to prefer companies that are already somewhat established. Firms will largely ignore “ideas” in favor of companies that have already started some operations.
The typical venture capitalist will do Series A funding as Preferred Stock and invest at least $1.5 million, which implies a company valuation of $3 million. Angel and seed investors are more interested in companies that are still in their infancy, and entrepreneurs may need to bootstrap the idea in the very beginning.
Apply for startup accelerators and/or incubators.
In Silicon Valley, YCombinator creates a great deal of buzz, but other startup accelerators in that region and other parts of the country are also good options for gaining credibility and capturing the attention of venture capitalists. Incubators will also help entrepreneurs turn their ideas into real companies that could get further funding.
Many people conflate incubators and accelerators, but the two organizations serve different functions. Incubators are geared toward entrepreneurs still in the idea stage and help these individuals further refine their idea and build a strong foundation. Accelerators, on the other hand, help prepare early-stage startups for funding.
Getting into an accelerator or an incubator can help a startup in many ways. First, the experience surrounds individuals with other entrepreneurs who can provide support and expertise. Second, many programs recruit venture capitalists to act as mentors. Even when venture capitalists do not serve as official mentors, they may pay regular visits to organizations to see what is going on there. This exposure can provide a solid head start to funding.
Practice the elevator pitch as much as possible.
With practice comes confidence, which is one of the most crucial elements to selling an idea. In several cities around the country, “mock” presentation events exist that allow entrepreneurs to pitch an idea and receive feedback from members of the investing community when stakes are low.
Often, venture capitalists sit on the panels that give feedback to presenters, so these opportunities could prove a great way of getting a foot in the door. Regardless, they are great for getting practice and feedback.
Once the elevator pitch is perfected, it should be included in introductory communications with venture capital firms. Usually, this pitch serves as a quick way for firms to gauge interest. Of course, introductory communications need to include more than just the elevator pitch, and they should be tailored to the firm, but the elevator pitch is a concise means of answering many of the initial questions that a VC firm will have.
Use technology to build connections.
Some entrepreneurs underestimate the value of connecting to venture capitalists through technology. Simple resources like Angel List often function as key means of researching and connecting with startups for venture capitalists. LinkedIn is another network that many venture capitalists use.
Individuals do not need to connect to a senior partner at a given firm and can instead try to build relationships with anyone who seems interested in the connection. When contacting people on LinkedIn, entrepreneurs should focus on briefly and succinctly explaining their company and personal goals, as well as the industry, to build interest. Associates, principles, and venture partners may prove the most likely to respond.
Connecting on networks like LinkedIn often gives entrepreneurs an email address where they can direct further communication. All inquiries about funding should be from one person to one person, so these emails are invaluable resources as companies move forward.