This is a step-by-step series guiding entrepreneurs on how to approach Venture Capitalists with focus on Silicon Valley. This is the second post and it aims to provide early-stage technology companies with some brief key industry insights on how to get the right introduction, how to prepare for your meeting and what to expect during it. We asked Arne Tonning, Partner at the Norwegian venture capital firm Alliance Venture and investor in residence at Nordic Innovation House to share some of his knowledge for this post.
As mentioned in the previous post, VC’s receive dozens of business plans every week and they meet with only a chosen a few. Fortunately, VCs generally pay little attention to traditional social benchmarks such as wealth or social standing in the selection process. Instead they seek a team that can execute on a unique business idea with large potential.
Naturally VC’s wants entrepreneurs to be networkers and problem solvers. An easy way to whittle down applicants is to only take meetings with referred startups. When you get funded you’re expected to be able to add value. Getting a referral may sound difficult but it pales in comparison to the challenges of building a large company.
Arne Tonning points out:
“Investments are substance dependent but you can maximize the likelihood of success through networking and referrals.”
To penetrate the VC community and to get you that warm introduction you need, consider using channels like:
· People around the ones responsible for your evaluation
· Portfolio companies
· Entrepreneurs in the ecosystem
· Incubators, accelerators and co-working spaces
If you can be picky here, try to focus your efforts on VCs that has good a reputation and large networks. Ideally they can help you to get the next round of financing later on.
Establishing networks and getting a credible track record may be a problem for a startup. One way to mitigate both is to enter a business incubator or an accelerator. There is a vast sea to choose from but getting in to highly regarded ones like Y Combinator, 500 Startup or TechStars provides your startup with excellent networks, opportunities to build customer base and world-class mentorships. Ultimately leading to possible referrals and traction, which are the two most important things to get a VC meeting.
(Top 10 incubators in the Valley)
Once you’ve successfully flattened the “applicant hurdle” and scheduled the meeting, you should focus your efforts on what matters the most, your substance. Many applicants have great pitches but no proof of traction; spend your time improving your metrics. It might also be a good idea to set an initial meeting before the actual presentation. Meet with a partner or associate, try to convince them and give them time to do more work before the actual meeting.
· Never send a NDA.
· Get your numbers straight.
· Know your VC, due diligence goes both ways.
· Work on presentation & Demo. Build your story.
· Metrics triumphs everything. Get proof of traction.
One note is that you should get an idea about how much money you want and the equity you’re willing to giving up to get it. But the split should not be carved in stone.
· Less pitch, more discussion.
· Always more show than tell.
· Show passion, hunger and honesty.
· Talk about yourself, your team and your background.
· Let the CEO/Founder do the main presenting but let the whole team speak.
The VC’s are looking at the quality and potential of your team while also seeking evidence of success and a large opportunity. Hence the presentation must include the following:
· Potential & Opportunity
· Current performance / Metrics
· Future performance
Our next post will touch upon your business plan and the VC decision process.