Whether you’re bootstrapping your startup or funding it via friends and family rounds, you may be wondering whether you should be considering venture capital funding as part of your next growth step. To get a handle on how to best approach the possibility of working with VCs, check out these five tips from venture capitalists who have vast experience in the field
1. Do Your Research. Don’t ask an investor for money before you research their organization, find out which other firms they’ve funded and gotten some insights about their style, said Paul Clauson of Functionize in a Crunchbase article.
“Are they hot on formal titles or are they laid back, first-name users? Are they detail orientated, or big-picture people?” Clauson asks. “Also, try to speak to founders who had less than spectacular results after being funded. Find out how the VC behaved as a board member when a startup didn’t become the next unicorn. The more you know about your potential VC as a person, the easier it will be for you.”
2. Ask Whether VC Would Fund Competitors. One consideration to keep in mind when working with a potential VC is understanding its stance on whether your competitors might get funding from the same firm.
VCs might pivot into other areas after signing a contract to fund your startup, which could result in their choice to fund a firm that you view as a competitor. “Conflict is a real important issue in this business,” said Scott Kupor, managing partner with VC firm Andreessen Horowitz, when speaking with the Wharton School. “Conflict, unfortunately, is always in the eye of the beholder,” he adds. Ensure that your relationship with a VC is based on terms that you approve, and that includes information about your competitors.
3. Put Together A Strong Team. Investors don’t just look at your idea and your leadership skills when deciding whether to put funding into your firm – the reality is that you need to assemble a skilled team to demonstrate that your company is going to succeed.
“The point is that VCs will be invested in learning about your team before they invest in you,” said Zach Ferres, CEO of venture firm Coplex, in an Entrepreneur piece. “Expect to supply details about your management team,” he said. “Be prepared to talk about your company culture and how your management team handles curveballs. Ensuring a strong team and good dynamics couldn’t be more crucial when you're trying to find VC funding.”
4. Remember That Raising Cash Isn’t An End Goal. Bringing in funding is a step toward your ultimate goal of creating a functional business – it shouldn’t be your end goal.
“The biggest mistake entrepreneurs make when they're first starting out is they think they have to raise money, and that raising money is an accomplishment,” said Mark Cuban at a conference last year. “Raising money isn't an accomplishment, it's an obligation,” he said.
What’s more important than fundraising? Sales, Cuban says. “It's not about raising money, it's not about the idea. It's about finding customers that you can really create value for and making them happy. And when you have happy customers, they tell other people who become happy customers and that turns into a successful business."
5. Don’t Necessarily Expect to Quit Your Day Job.
Not all funding rounds will allow entrepreneurs to leave their day jobs, and some VCs won’t want or expect you to.
“We’ve found that those who apply and plan to grow their idea while still working their day jobs are more confident in their ability to manage their money and time,” said Virgin founder Richard Branson in a recent blog post. “Not having to be reliant on their new business to provide them with a full-time income, they are given a bit of breathing space and time for their idea to gain traction. By working, they are able to make their loan last longer and go further.”