February 10, 2009 in Raising Capital
One common thing that stands out while speaking with entrepreneurs and VCs alike is that there is lot of misconception and misinformation out there about the capital raising process.
Misconceptions which unless challenged with the help of right information can stop your capital raising efforts dead in their tracks.
Over the last decade of watching entrepreneurs go out for venture capital, some successful, some not so successful, experts have seen what the number one problem is for those entrepreneurs; and it’s not what you might think.
Some of these businesses have had extremely clear value propositions. Not to mention,
- the Ivy League management teams that would be around the block AND who had previous successes under their belts
- extreme competitive advantage with high barriers to entry
- very well defined market opportunities
- great initial traction, evangelists, and customer retention
Sounds like an investors dream, right? Then what did they do wrong? Why did they still fail to raise capital?
Lo and behold, the biggest mistake made by entrepreneurs like these is pursuing the WRONG investors.
Just like a specialized surgeon, most VCs have areas which they feel very comfortable with, and others that they don’t. For example, even the most attractive clean-tech company might be quickly thrown in the trash can by a VC firm whose core focus is pharmaceutical deals.
If you are going after the wrong VCs, no matter how good your company is, you probably won’t get funding.
So remember — there are two major things to do before making those initial contacts.
First, rather than blindly reaching out to a handful of the thousands of VC firms, it is important to create a list of those that will actually have a synergy with your business.
The key factors to look at in creating that list are:
- Sector Preference
- Stage Preference
Secondly, you will want to make sure that the VC you want to pursue is active.
One quick and easy way to do this is to go to the press release section of the VC’s website and/or check Google News etc., to see how active the VC or his firm is. If they have not done a deal in a year, they probably aren’t actively investing in new deals and may not be worth contacting.
These two steps alone can save you hundreds of hours and put you in the right direction to raise capital for your business.
By the way, don’t fret even if some of the terms above confused you. These and many more will be explained in our other articles. So, just stay tuned and remember to bookmark startups.in/resources