While most Venture Capital firms have their own unique styles and criteria, the investment fundamentals are fairly similar across the board. Here are ten tips to help your fundraising process along:
1. Be resourceful and find a way to get a warm introduction. Your first meeting is primarily about building credibility. LinkedIn is a great tool to find mutual contacts. In addition, use your local start-up community to find entrepreneurs who have successfully raised capital and see if they would be willing to help break the ice.
2. Explain your background carefully. VCs will invest in the entrepreneur before the business. You need to explain why you and your team have the relevant experience to differentiate your business from your competition.
3. Find a clear and concise way to articulate your business plan in under 90 seconds. Albert Einstein summed it up nicely when he said, "If you can't explain it simply, you don't know it well enough." You will be judged on your ability to sell. If you cannot articulate your business concisely and clearly, how will you be able to sell your product or service to your customer?
4. Show proof of concept. Discuss the pain point your business is addressing. Share customer success stories with metrics that can be validated. These will indicate the viability of your business plan.
5. Find the right opportunity to quickly demo your product. Great brands and products are built on user experience. A brief product demo will set the stage for your discussion and help get your business plan across.
6. Be prepared to explain industry dynamics and competitive landscape. Investors want to understand the competitive landscape and how you are able to differentiate yourself. The VC will need to understand the industry size and how big this company can reasonably get.
7. Be patient and don't be defensive. It will take time for the "penny to drop" and for the investor to understand what you're trying to accomplish. Don't get frustrated. This discussion will give the VC some insight into what you will be like as a partner.
8. Leave the door open for follow-up. No investor will invest in your business in the first meeting. Always make time and creation options. Even if your business does not necessarily fit the VC's investment criteria today, it might in the very near future.
9. Don't present a business plan. You might want to have a business plan prepared, but VCs aren't necessarily looking for key financial and business metrics at this stage.
10. Be explicit and don't play games. All VCs have their own style, but the general preference is to hear the ask: how much money are you raising, what is the pre-money valuation and what are you looking for in a partner? VCs do not want to hear "we are just starting the process and will get back to you" or "transactions in our industry typically trade for x and x." VCs are not strategic buyers and do not pay IBM or Google type multiples. Valuation games are transparent and you will be much better off letting an investor know exactly what you are looking for.
Daniel Klass is the founder of Klass Capital, a Toronto-based venture fund. You can follow him on Twitter at @klassCapital