10 Ways to Catch a Venture Capitalist’s Eye
To get investment from venture capitalists, your company has to measure up—and the standards are high. Does your company have what it takes?
Here are 10 ways to stand out and catch a venture capitalist’s eye:
1. Your target market is $1 billion or more.
Mona Bijoor, of JOOR, raised $20.5 million by making a match between brands and retailers in the billion luxury fashion market.
That’s what VCs want, at least a $1 billion market, said Kathleen Utecht, Venture Partner at Core Innovation Capital, which invests in financial products that save people time and money, create upward mobility, and scale broadly. Her job is to identify investment opportunities and check them out. If your market is less than that magic billion-dollar mark, you want an angel, not a VC.
2. Your product fills a real need.
A huge market isn’t enough. You have to have a product or service that can become a must-have for a big part of that market. If your product or service addresses a major pain point in an industry, VCs may be interested. But it needs to be a major pain—like one that can generate $100 million for your company. That takes innovation and market disruptions.
3. You can make a stellar return on investment.
VCs want companies that will grow and grow and grow…until its time to leave through an IPO, a merger or another exit strategy. VCs aren’t interested in lifestyle businesses, even if they happen to have the potential to bring in $10 million in annual sales. VCs want a high-return exit, one way or another, according to Renee Park, who is an associate at High Peaks Venture Partners, which invests in vertical SAAS and ecommerce companies.
4. You’re ready to scale, with help.
Venture capital is a good option if your business is on the cusp of major growth. Bijoor and Lynn LeBlanc of HotLink turned to venture capital to start or scale their businesses.
But it’s not always the case that you need outside funding. If you can grow quickly and profitably, without giving up equity to someone else, that may be a better choice, according to Utecht. After all, it’s your baby. Why give it away?
Liz Elting grew TransPerfect, a translation and discovery service for law firms and other businesses, to $340 million without giving up equity to venture capitalist.
5. Your product has traction.
Venture capitalists want demonstrated interest by customers in your product or service. Don’t just pitch an idea: Build a Minimum Viable Product (MVP), with enough of your ideas to test-market the product with reliable results. You’ll get feedback from early adopters, which can make the product better, as well as generate interest among the VCs.
That MVP can be simple. Even when Ilan Stern showed a paper version of Weddington Way, a collaborative shopping site, she was able to raise money from friends and family. Later, she raised $2.5 million in a seed round. Weddington Way sold 25,000 dresses in 2013 and matched that in the first half of 2014 alone. Not bad for having opened its doors in 2011! In August of 2014, Stern raised $9 million in a Series A round of venture funding.
6. You’re different and can sell that difference.
Everyone has competition, whether it’s a similar product or the status quo. If you don’t analyze what that competition is and how you can overcome it, you’re not doing your job. Not only do you need a great idea for a new product or service, you need to show VCs that you can get people to use it.
7. You have a great team.
Great enterprises are run by teams whose skills complement each other.
The team that Long (of DataGravity) put together had a track record that included high-quality technology as well as sales and marketing. The team was so valuable that the company sold for $1.4 billion.
VCs look for a strong team, according to Anu Duggal, a serial entrepreneur and investor. She founded F Cubed (Female Founders Fund), a seed-stage fund investing in technology businesses founded by women. VCs know that things change as a business grows but, if the team is strong, it can accommodate and thrive as change takes place.
8. You are willing to share power.
Often, VCs want to be on your board. Not all, but some. Maybe they just want an observer at meetings, but if their money is in the game, they want to know what’s going on. Choose a VC you can work with.
9. You can connect.
Once you bring a VC on board, s/he will be part of your business and your life. Be sure you are personally compatible and have good chemistry. Make sure you also have shared expectations, vision and objectives for the company, said Duggal.
10. You are willing to learn.
Yes, you’ve come a long way, have an idea and maybe even a thriving business, but you don’t know everything. Be willing to listen and to beef up your skills. Growning your own abilities will help you grow your company.
For those ready and willing to listen, Springboard Enterprises is one example of a group providing leadership training, access to capital and connections to accelerate the growth of women-led companies. Its companies have an 83% fundraising success rate and have raised $5.6 billion. Springboard looks for women who are coachable, women who can handle tough feedback.
How many boxes can you check? What are you going to do so you can check the rest?