See Your Start-up Through Investor Eyes

See Your Start-up Through Investor Eyes

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If you want to raise venture capital, the first thing you must do is see your start-up through the eyes of potential investors. Here are five tips that will help you connect with those investors:

1. Selection

Identify the right audience because each investor has different likes and dislikes. You should research potential investors before you talk with them so that your company fits the stage — early, middle or late — and the industry that the investor prefers.

2. Introduction

Get an introduction through a trusted source. You should seek an introduction through the CEO of a potential investor’s current or former portfolio companies.

3. Presentation

 

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Have a brief PowerPoint deck that tells a story in non-technical terms. Your deck should address your venture’s team, market opportunity, need for the product and its value to the customer, its position relative to the competition, how much capital you’ll need to build the company, and a financial plan.

4. Be realistic

Be intellectually honest rather than answer every question. You should quickly admit you don’t know rather than try to bluff.

5. Adapt to feedback

You should listen to feedback, absorb its intent and revise your pitch accordingly.

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The right characteristics

In order for this flurry of activity to have meaning, you will have to answer two fundamental questions the right way as well:

Are you a great start-up CEO?

Venture capitalists (VCs) spend time with a few dozen entrepreneurs who display the right characteristics. If you are energetic, inspirational, smart, hardworking, honest and magnetic, meaning people want to help you, then you have some of the right characteristics.

But you also need to be tireless in pursuit of market share. Great start-up CEOs are driven, relentless, have a vision and want to disrupt a market.

Before you ask them to write you a cheque, spend enough time with potential investors to show them — based on your experiences in college, sports or family life – that you have all these traits.

How do you plan to disrupt a big market?

If you can prove to an investor that you are a great CEO, you’re about half way there. Your next challenge is to make the case that you can build a start-up that will get big fast so they can generate a return on their investment.

To do that, you will need to convince a VC that your venture targets a strong market with a valuable product. It follows logically that a combination of these two factors could mean your product will gain share rapidly in a fast-growing market — and that would give the VC a return on investment.

What is a strong market?

It’s big and growing fast or ready for a new product that will generate a rapid spike in demand. Doing that means finding customers that have a history of adopting new technologies quickly, who your start-up can reach without spending too much money.

To assess whether your venture has what it takes, ask yourself whether you have a vision for how your start-up’s market will evolve. If you can convince the investor that the answer to both questions is yes, they will be eager to invest.

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Peter S. Cohan
Peter Cohan is president of Peter S. Cohan & Associates a management consulting and venture capital firm. He is the author of Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision (Berrett-Koehler, 2012).