Everything You Need To Know Before Approaching a VC

Everything You Need To Know

Before Approaching a VC

Building a business makes you independent of investors, which is a good thing. But venture capital is a way to scale yourself up and grow rapidly. Here, Tamar Donikyan, a corporate and securities partner at the prestigious law firm, Ellenoff Grossman & Schole, gets down to the nitty-gritty of how you should use an investor for being conducive to where you’re trying to get with your company.

Tamar A. Donikyan

Diversity will take you further than you think it will.

More diversity, whether it’s more diversity in the boardroom, company, or even thought – leads to better outcomes for companies. Founding teams with a woman on it perform 62% better than all-male teams.

Nothing takes the place of experience.

No matter what you’re selling, you’re selling it to large corporations, and there’s a process to do that. The most effective people are the ones who have already done it in some capacity.

The VC firm will research you.

While they don’t necessarily use specialized software, investors like to make sure they’re betting on the best of the best by doing some market research. There are databases and other resources for doing this; for example, there’s App Annie for understanding how big an app is. Fortunately, the databases the investors use are the same ones you can use: Mattermark, CrunchBase, and Pitchbook are all readily available to give you information about your competitors. Only good can come out of being well-read.

“…on the order of 4000 ‘fundable’ companies a year, that want to raise venture capital……about 200 of those will get funded by what’s considered a ’top tier VC’; about 15 of those will someday get to a 100M in revenue…” – Marc Andreessen

Get to know the VC firms and vice versa.

Investors expect you to know about them and what assets they have. Really understand the person you’re talking to and what other deals they’ve done. What are the things that investors should want to know about your company, and how can you expose them to that? You need to know why the investor you’re selling to is perfect for you, and be prepared for feedback. People want to invest in people who listen, so make sure you listen.

Keep networking.

Non-database research is all about building a relationship. Irrespective of whether you’re ready to get the money you seek, try to access individuals that have the expertise to bring value to your company. Remember, value is more than just based in dollars and cents. Add investors to your mailing list and send meaningful updates. Just because they weren’t interested at first doesn’t mean they can’t become interested later – people come around.

An investor-entrepreneur relationship is not a Hollywood marriage; you can’t just call it quits after a few months.

The relationship between an entrepreneur and her investor is a 7-10 year commitment. Make sure the people with whom you want to work are people that you’re excited to work with in the long term. Make sure you know the motivation behind their decision, and that their ideas of the larger picture are aligned with yours.

Don’t think crowdfunding will take the place of venture because you’d be betting your chips on the wrong pony.

At best, crowdfunding is great for the first round of financing, not the later stages.

Tenacity is the best quality an entrepreneur can have.

Like anything, raising capital is a numbers game. Getting a dozen rejections doesn’t mean you should be discouraged. If you believe your business has value, then persist like there’s no tomorrow. Make sure your tenacity matches with that of those you are asking for backing.

Not all investors are right.

You know your product, and you’ve done your research. You know more about your product than they do. A lot of the time, investors can be wrong.

Venture isn’t the only option, and it’s not always the best option.

For those individuals who have special financing needs in order to build a larger idea, VC makes sense. For others, it may be exactly what they don’t need.

At the end of the day, investors want to know that you have a big vision and are thinking about a large opportunity, but that you’re also thinking strategically. Show all of the potential –  show where you are today, and include in that your experience and in your team. It’s a balance; you must both demonstrate that you have a tremendous opportunity on which you can capitalize in the future, but you must also be able to convey that you understand the small steps and the harder, less fun things you have to do.

Shannon Matloob

Shannon is a contributor at SWAAY. She has a degree in Media, Culture, and Communication at New York University with a passion identifying and researching other women on the path to greatness.

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