If what you read and heard about seeking venture money is more than two years old, it’s probably all wrong for today. “The pandemic changed everything,” said Jason Frishman, CEO of Netcapital, an online platform that helps startups and potential funders meet up. Before Covid, most investment meetings were in person and often in a handful of locations such as the San Francisco Bay area, Boston, and New York. The pandemic, said Frishman, pushed most meetings online and virtual and an upshot is that more startups are getting in front of more potential investors. “The process has become more democratic,” said Frishman.
Presently, there is “a lot of investment money out there,” said Rackza. Literally billions of dollars are searching for a profitable place to land.
The money is there, the question is how to get into that elite group who in fact win investments.
If you think you are ready — and, honestly, there’s no harm in going after investments at any stage in a business’s life — read on for tips from a mix of seven investors. Pay particular attention to what they say to do and what they say to not do. That’s a first step in winning funding.
Another step: know that just about every investor has specific areas of interest. A startup might have a brilliant Web 3.0 idea — a TikTok for the Metaverse maybe — but knock on Rackza’s door and it’s likely he won’t answer. That consumer orientation is not York IE’s arena. Enterprise software is.
At GSR Ventures, for instance, partner Justin Norden focuses only on digital health companies — and only on companies where funding could result in fast track growth. “We don’t fund incremental growth,” said Norden. Underline that because that is a goal that is widespread throughout the investment community. “We want to fund growth that is 2X to 10X or more,” said Norden.
“A venture-funded company has the capacity to grow exponentially. [Investors] are looking for high returns,” said Jose “Caya” Cayasso, co-founder and CEO of Slidebean, a fundraising toolkit for startups. Modest growth — even a sturdy 15 or 20% — just is not what this crowd is hunting for.
A last yardstick: how mature is your company? Some investors — Norden for instance — will invest in a concept. Many others want to see a company with a real product and at least some sales. “We won’t invest in a deck and a dog,” said Rackza.
“We won’t invest in a company that doesn’t have something built,” added Jules Miller, a partner in Mindset Ventures. “Most are one to two years old but some are more mature.”
Recommended: Listen to our podcast interview with Jules Miller below!
Getting in the Door
Don’t think it’s enough to find a VC mentioned in a story like this — or in a web search — and that’s plenty to shoot off an intro. Hold your fire. Miller tells what just about every investor will say: “It’s usually about warm introductions — introductions through a vetted network. Via other portfolio companies Also a lot of accelerators.”
Other kinds of connections can also help. “We see a lot of companies coming out of Stanford,” said Norden, who holds two degrees from the school (an M.D. and an MBA).
“We’ll also often look at new companies coming from entrepreneurs we previously funded in an earlier venture,” he added.
The takeaway: as Miller suggested, warm up an introduction by knowing someone known to the investor who can put in a word on your behalf.
The Pitch Deck
Key to the money hunt is the pitch deck — usually a PowerPoint file, but, importantly, it is short and punchy. Think “15 slides, that’s the norm,” said Cayasso.
He added: “Most decks are 12 to 18 slides, sometimes up to 25. Rarely under 10 slides. Investors will spend around four minutes.”
Don’t ignore that time limit — four minutes can tick away quickly.
Rarely, nowadays, will the startup founders present a deck in person. Typically, now the potential investor is emailed the file and clicks through it at his or her leisure.
The deck has to make a persuasive, compelling case for the company. What’s more, the deck starts the process but doesn’t end it. “The outcome you want is further conversation. The next step is a call. They won’t invest on the basis of a pitch deck,” said Cayasso.
What do investors want to see in a company they fund? A business plan, of course, but that is just a start. They need substantially more convincing before opening the checkbook. But what individual investors see as a strong sign of a good investment potential varies significantly.
Eugene Zhang, founding partner at TSVC, a fund created in 2010 that has put money into around 240 companies and can claim having made early-stage investments in several blockbuster unicorns including Zoom, said he is continually sifting through potential investments and generally will make around 15 in a year.
What catches Zhang’s eye? “We need to hear a compelling story and we also want to see a team — why have these people joined in this story?”
Mindset Ventures’ Miller said she looks for a company with a unique product that will have a big impact.
York IE’s Rackza said he looks for the company’s growth levers — how will it achieve meaningful growth.
Norden said he wants to get inside the head of the entrepreneur. “What key insight do they have? Do they teach me something? Often in most pitches, I am not learning anything new. Once in a while, an entrepreneur teaches me.” Don’t tell Norden what he already knows, tell him what he doesn’t know and that excites him.
Put together this advice, and exactly what should you do? Netcapital’s Fishman ticks off a five-step path to winning funding:
- Demonstrate passion for the business, and show that you care. Investors want to fund an entrepreneur they know won’t give up when the going gets tough as it inevitably will.
- Show momentum. Every time you talk with a potential investor — and there will be multiple conversations before a check is written — always have new progress to report.
- Always go back to investors, even ones that already said no, if you have new information that just may change a mind.
- Prove you accomplish the goals you set.
- Create FOMO — there has to be a sense of urgency and a fear of missing out to get that check written.
Put these suggestions and tips together, and that’s your playbook. Practice, polish, perfect. And get ready to win funding.
43 North: Inside an Accelerator
Do you fear that maybe you aren’t ready to go after investors? Not all startups succeed in nabbing funding. You probably did not want to read that, but it is true. However, it’s also true that there may be a way to fix that company so that it succeeds when it tries again.
Here’s the big reason why many companies fail to win funding: “They go out way too early,” said Slidebean’s Cayasso.
There’s a cure for that, however. A business incubator and the United States is full of them (they sometimes are called accelerators). A few years ago the International Business Innovation Association put the number of incubators in the US at 1400 and that number has only grown.
Incubators are ideal for helping a startup mature.
What is an incubator? Often run by a university, sometimes by a government body, occasionally by a big business, an incubator is a place where an early-stage company can often get office space for free or a nominal amount, sometimes there’s seed money that’s invested in the startup, frequently there’s also free consulting available and always there is the opportunity to interact with peers and those who have already made it.
Getting into a prestigious incubator is not easy. At 43North — a Buffalo, New York-based incubator primarily funded with public money — Kevin Siskar, vice president of portfolio and selection, said he gets hundreds of applications annually, about 20 are invited in to pitch, and eight are selected for funding and support.
The winning CEO and half the team moves to Buffalo for a year — where they enjoy special tax breaks from the state — and a real plus is that after they have buffed and polished their offering, 43North has an extensive network of investors who are ready to look at products of this incubator. “We have hundreds of investors,” said Siskar.
You’re hearing too many loud door slams from investors? An incubator just might be the right next step for your startup.
About the Author
Robert McGarvey, a veteran journalist who has long covered startups and small businesses, created and hosts the CU2.0 Podcast for credit union and fintech executives which is at 120 episodes and counting.