Entrepreneurs rarely have the capital necessary to start a business successfully on their own. Even hugely lucrative startups such as Uber and Snapchat completed several rounds of funding to get their business ideas off the ground. In fact, venture capitalists (VCs) invested approximately $58.8 billion last year in companies in the United States.
But securing funding is no walk in the park. It is probably the single greatest psychological burden on startup founders. Without proper preparation, fundraising can be nothing short of an emotional rollercoaster.
Entrepreneurs have found ways to manage this stress and avoid burnout. The key is doing as much research upfront as possible to remain one step ahead of the VC. Understand each investor you pitch inside and out, and make sure you have a fully developed business plan that addresses all anticipated questions.
The following tips can help entrepreneurs nail investor pitches and minimize stress along the way:
Develop and communicate a thesis: It is important for entrepreneurs to have a thesis that serves as the basis of their business model, and it is crucial to explain it to your investor upfront. This can help you find VCs that are truly aligned with your beliefs and rule out those that will simply never agree with the foundation of your business.
For example if a startup’s thesis centers on the idea that elastic compute platforms like AWS and Google and Azure will be where all future software companies decide to host their applications, and the VC they are pitching still fundamentally disagrees with this, it will be nearly impossible for this entrepreneur to secure the investment. It is almost like believing in two different religions or gods.
Research the VC: Look at the last time that VC did a deal. Unfortunately, there are many funds that still take meetings but do not actually have the means to invest. They are either out of money or still closing their next fund. Either way, it will waste your time.
It’s important to also determine the VC’s process and typical decision-making timeline. Some VC’s like to follow a business for a few months and then make a very aggressive and fast investment decision, while others make gut decisions almost instantly. Understanding the VC’s typical process is key to effectively preparing as well as managing the relationship.
Be honest: VC’s see thousands of deals a year and generally do not believe entrepreneurs when they claim their startup is perfect and immune to problems. In fact, claiming that your business is flawless can make you appear like an ameteur. VCs want to know that you have anticipated possible problems and have a plan in place for how to address issues that arise.
Forecast: Ultimately your pitch needs to boil down to the financials. Put together a business plan with short-term and long-term financial forecasts. How will you make money in the long run, and what will you do with the VC’s initial investment money? Forecasts are just as much about revenue as they are about cash deployment.
Treat it like a full time job: Working with millions of dollars from a VC is a full-time job. It’s important that as an entrepreneur you commit to the process. VCs are simply not going to invest in companies that are considered “side projects.”
Pitching investors and securing funding is a grind. There’s no doubt about it. However, there are ways for entrepreneurs to reduce stress while also impressing investors. The key is to prepare ahead of time, do your research and truly take it seriously.
Kerry Liu is the Co-Founder & CEO at Rubikloud, where he leads three important functions: people, sales, and technology disruption. Rubikloud helps retailers monetize their data to power personalized campaigns through the use of advanced machine learning techniques, effectively bridging the gap between marketing automation and retail management consultants. Visit www.rubikloud.com.
