Have you sought financing from venture capitalists? Perhaps the answer to that question is yes or you may be thinking of it. It’s crucial to know what it takes to win the heart of venture capitalists.
Venture capitalists bring additional benefits to the business. Good advisory, customers, good network, employees and other resources necessary to make business thrive. However, these may depend on the agreement between the parties involved.
Winning venture capitalists to finance business is a tall order, especially for start-ups. Even for established businesses with little experience interacting with venture capitalists is challenging. Numerous businesses get to the list of applicants when there are windows to apply. Unfortunately, very few qualify for funding. These opportunities come in various ways like innovative ideas, challenges, or competition among other techniques. Other venture capitalists are open to businesses without necessary advertising.
Venture capitalists ask several questions and do various tests to ascertain the information presented as Pitch Deck. The best way to win them is to prepare for a set of questions. These questions cut across various aspects of the business as below:
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A look at the Management Team
- Who are the founders and key team members?
- What relevant domain experience does the team have?
- What key additions are needed to the team in the short term?
- Why is the team uniquely capable of executing the company’s plan?
- How many employees does the company have?
- What motivates the founders?
- How do you plan to scale the team in the next 12 months?
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Is the market opportunity big?
- Is there an opportunity to scale the business?
- Does the market accommodate innovation?
- How is the competition?
- What positive early traction has the company achieved?
Examples of early tractions
- Creation of beta or minimally viable product
- Initial or pilot customers especially brand-name customers
- Strategic partnerships
- Customer testimonials
- Admission into competitive programs such as Y combinator or other technology accelerators or incubators
- Are the founders passionate and determined?
- Know metrics cold
- Have a clear idea of the business before presenting to venture capitalists
- Know how to grow it
- Do the founders understand the financials and key metrics of the business?
- Has the entrepreneur been referred to me by a trusted colleague?
- Is the initial pitch deck professional and interesting?
- What are the potential risks to the business?
- What do you see as the principal risks to the business?
- What legal risks do you have? Will the business model comply with the applicable laws, including expanding privacy protections?
- What technological risks do you have?
- Do you have any regulators’ risks?
- Are there any product liability risks?
- What steps do you anticipate taking to mitigate such risks?
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Why is the company’s product great?
- Why do users care about your product or service?
- What are the major product milestones?
- What are the key differentiated features of your product or service?
- What have you learned from early versions of the product or service?
- What are the two or three key features you plan to add?
- How often do you envision enhancing or updating the product or service?
- Projected use of the capital?
- Is the Expected Valuation for the Company Realistic?
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Does the Company Have Differentiated Technology?
- How differentiated is the company’s technology?
- What competitive advantages will there be over existing technology?
- How easy will it be to replicate the technology?
- How costly will it be to build the technology into each product?
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What is the company’s intellectual property?
Venture capitalists would want to know the risks exposed to the business as a result of intellectual property.
- What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
- What comfort is there that the company’s intellectual property does not violate the rights of a third party?
- How was the company’s intellectual property developed?
- Would any prior employers of a team member have a potential claim to the company’s intellectual property?
- Is the intellectual property properly owned by the company?
- Have all employees and consultants assigned the intellectual property over to the company?
- If the intellectual property was developed elsewhere, how does the company have the right to use the technology?
- Are the company’s financial projections realistic and interesting?
- Is Your Legal Formation Clean and in Compliance with Applicable Laws?
These are the guiding questions for venture capitalists and once you get them right, you have a high chance of getting financing from Venture capitalists. Lack of finances is one among many factors that hail startups and getting an opportunity to seek funding elsewhere should not be taken for granted.
Generally, startups that do not have seed funding do not qualify because of a lack of many things that can give a clear perspective of the business. It is important to note that venture capitalists have experts who handle these issues daily. Their experiences have given them a solid understand of all manner of businesses and as such, you should be truthful in all your presentations.
