If your startup is on a growth trajectory, you will, at some point, be seeking venture capital. And since venture capitalists have the ability to write multimillion dollar checks — while expecting significant returns — the process of raising money from them can be quite nerve-wracking.
Here are five steps you need to follow if you are looking to raise VC for your startup:
Step 1: Determine how much money you need (and want)
– The first step when raising large amounts of funds is to assess how much capital you will actually need. For this, start with at least enough to cover basic operational expenses for at least a year or two — this is so you don’t have to go back to the VC every few months. Then, add a decent buffer for, say, another six months to cover any uncertainties.
Step 2: Evaluate where you stand
– The next step is to ascertain your overall business strategy and important milestones for the next at least one year. Ask yourself questions such as: What stage are you currently at – launch, idea, etc? Do you have a prototype? What about traction for your offering? Do you have verifiable results? This evaluation will help you find out whether you have a compelling business idea, which will in turn tell you whether you will have your pick of VCs or you will have to struggle to raise funds.
Step 3: Build your pitch
– Your pitch should ideally not exceed more than 10 to 15 slides — at times, a shorter document at earlier stages of fundraising is preferable. The pitch should explain as succinctly as possible why you need the money. Don’t forget to practice before you present!
Apart from the presentation, two documents to always have handy are a thoughtfully written business plan and a short executive summary of the business plan. A business plan typically includes the business model, financial projections and assumptions, information on the target market and the core team members.
Step 4: Create (and short list) a list of investors you wish to target
– Depending on the size of the funding round as well as your goals, these investors can be entrepreneurs who themselves started a business in a similar industry, angel investors or large VCs. Make use of public data sources such as AngelList, Crunchbase and LinkedIn to see who is more active in your stage and industry but is not involved with your direct competitors. You can also reach out to your network of friends and other contacts who may know VCs.
Once you have an extensive list of investors, short list the ones you would like to reach out to and then, determine how you will do so. If you don’t have someone who can introduce you to potential VCs, come up with a solid cold outreach plan as well.
Step 5: Choose wisely
– Selecting the right VC is key. Ultimately, it is up to you to decide what matters most to you: the investor, their reputation, their network or the terms set by the investor? Choose a VC whose track record aligns with your goals.
