Funding plays a critical role in starting and growing startups. And various sources of funding exist for a startup at different stages. At the earliest stage, startup owners usually rely on personal incomes and funds from friends and family. If a startup continues to thrive as anticipated, it will eventually require larger amounts of funding from other sources. Venture capital is one of the available options. VCs are partners that take risks with you and support your growth to the next level. But getting venture capitalists to fund your business is never an easy task. In this article, we consider 5 tips that will make your startup attractive to venture capitalists.
1. Gather Momentum
To get venture capital for your startup, ensure your startup gathers momentum that suggests it has a huge potential for growth. Venture capitalists are only interested in startups that have proven growth potential. And there are different indices that will be used to assess this. One of such is the observed traction of your product or service. Is there a growing demand or customer base? Your chance of obtaining VC funds is high if you are selling a widely used service or product and there is increasing demand, which requires expansion. This can also be demonstrated by your profits and sales records. Therefore, a large target market is an indication that your startup has a huge potential for growth. This will also help you to come up with convincing projections.
2. Have a Strong Team of Professionals
Venture capitalists provide more than funding; they also provide mentorship, expertise or professional support and strategic assistance; they can equally introduce you to potential partners and customers. Nevertheless, you do not stand a good chance of getting venture capital if you do not have an existing strong team of professionals. You need a reliable team to handle accounting and legal needs, including experts of the concerned industry and the venture capital process. This is one of the aspects the VC firm will examine at the due diligence stage.
3. Correctly Select Your Target
It is important that startup owners conduct exhaustive research on the VCs on their lists. VCs typically focus on specific industries, company sizes and geographical locations. Furthermore, smaller VCs may intend to invest within the range of $500k and $2 million while larger ones may be looking to invest within the range of $5 million and $10 million. Therefore, conducting extensive research on the previous or recent investments of each of the VCs and approaching the right ones will enhance your chance.
4. Get Introduced by a Trusted Professional Colleague
Admittedly, venture capital is not easy to obtain. Many of the VCs are inundated with emails, mostly unsolicited ones, from startups seeking funding. And most of these emails are not attended to. So, you are advised to approach your targeted VCs through their trusted professional colleagues that are mutual acquaintances, such as their lawyers, accountants, auditors or business associates. This will not only help you to secure attention but also enhance your chances if most of the requirements are satisfied.
5. Do Due Diligence and Prepare for the Same
Even if you are introduced to the VCs by a trusted person, failure to do certain things right may deny you a golden opportunity. One of such things is to have convincing business proposal, executive summary and financials. In addition, have an excellent 30-second elevator pitch that will convince the venture capitalist to read your documents. Before approaching a venture capitalist, do your research; have demonstrable projections; know your revenue and profit; know how much you need and how you intend to use it. The venture capitalist will examine your management team, market, financial statements, documents, corporate governance, product and services. Do due deligence and prepare for the same!
Securing a venture capital can be tasking. But venture capitalists are also interested in investments. Whether a startup will successfully secure VC or not depends on several factors, some of which have been discussed. Provable momentum, exhaustive research, a strong team of professionals, and using the right social network will boost your chances.
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