April 9, 2019 | 4-minute read (776 words)
By: Mike Lilly, Director of Business Development, Seattle
Early Growth Financial Services runs a unique event series in each one of its major markets called "Meet the VC.” It is a fireside chat where prospective founders can talk to VCs about industry trends, investing thesis and process, and ultimately the companies they invest in.
After hosting roughly 50 of these events per year for the last several years, we have some key takeaways to share, particularly about the mistakes founders make within the fundraising and pitching process.
Below are the common mistakes to avoid:
1) Market Opportunity--Approaching VCs when your company isn't a VC fundable business.
This is far too common. The fact is that most startups in the United States and elsewhere will not take on outside venture investment. The ones that ultimately get funded solve problems on a scale that for the VC would ideally would result in a multi-hundred million or billion dollar business that penetrates large ($10B>) markets. To expand further, Venture Capital mathematics dictate these parameters. Typically, 7-8 out of 10 portfolio companies might fail, or not return enough capital, 1-2 will break even on investment, and perhaps 1 out of 10 is the highly coveted multi-billion company or "home run" which produces the majority of the returns for the fund. Your company has to look like it has the potential to be a home run in order to garner interest from a VC, due to the risk involved. It's perfectly fine if your business doesn't fit this model, it just means that other sources of funding should be considered and prioritized accordingly. Some other options include micro VCs, convertible notes, angel investors, or crowdfunding.
2) The business problem or solution is unclear or hidden in your pitch deck
This is simple, but somewhat surprisingly, it is common for VCs to see pitch decks that are longer than the acceptable
10-20 slides, or pitch decks that don't articulate what the business does and why you are doing it. Ensure your pitch deck is concise yet detailed enough to convey all of this information clearly.
3) Not highlighting the management team's skills and experience
So you have a problem and you've figured out the solution with your new business, but why are you or your team the right people to execute? Conveying this is especially critical in the earliest stages of investment i.e. angel, pre-seed and seed when the concept or business is unproven. At this point in the company's life cycle the investor is really making an investment in the team. It's a huge mistake to skip a management team slide in the pitch deck or bury it at the end or in an appendix. In the beginning stages, all the company has is the team. If you don't happen to have the relevant management skills or experience on board, surrounding yourself with an experienced advisory board can inspire confidence in your company in the eyes of a VC.
4) Not starting the fundraising process soon enough.
There are funds that are quick to write checks to companies, but most founders underestimate how long it can take to close a venture round of funding. Generally, the best time to fundraise is when you don't actually need the money. It takes the desperation out your pitch and allows you to build rapport and relationships with investors. Investors want to get to know the company and the team prior to investing, and you should want to get to know them to make sure you are both right for each other. The takeaway here is that it's not about how fast you can raise funds. It's more important to focus on who you are raising from and whether they are the right investor for the business.
5) Follow Up and Founder Communication to the VC is poor.
Thank you's, investor updates, and quick responses go a long way with VCs. Generally, a good rule of thumb is to respond to any business requests within 24 hours. If that's not possible, at least an update to why that's not possible (travel, emergency, work in progress, etc.) is important. If it takes multiple days or weeks for you to respond, it could be a sign of a lack of organization or focus that may raise questions about the ability of the founding team to run the company effectively.
If you have any additional questions about the fundraising process, please don't hesitate to contact EGFS.
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