Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Essential Element #5: Target Your Funding Audience.

Often, start-up companies looking to secure equity funding from venture capitalists or other private equity sources do not spend any time learning about their potential investors and the types of venture capital firms that are available as funding sources or their specialties. By doing your homework on the venture capital firms and their specialties, one can target the appropriate venture capital audience for your company, its target industry, technology, stage of funding, and geographical preferences. So, it is important to become a “sophisticated” entrepreneur. That is, do your research on your potential venture capital base that will be receptive to you, your company, and its technology, product, or service offering.

How to Approach the Venture Capitalist

The best way to approach a venture capitalist is through a quality or “soft” introduction. Unsolicited business plans get rejected 95%+ of the time. With a “soft” introduction through a banker, lawyer, personal friend, accountant, or another entrepreneur, the venture capitalist then has a reference point in which to consider the business plan. If your contact has a good reputation with the venture capitalist, they will not want to introduce a plan that is inconsistent, incomplete, or will tarnish their reputation, and, as such, has a much higher probability of being reviewed and considered by the venture capitalist. As always, it is not “what you know”, but “who you know” that makes the difference in many career situations. This is especially true within the venture capital community.

Meeting the Venture Capitalists

Many entrepreneurs do not realize that the initial meeting with the venture capitalists is primarily a “selling” task. Here, it is the entrepreneur’s job to present the essence of your company and its business plan concisely. The object is to convince the venture capitalists of your plan’s merits and at the same time earn their trust and mutual respect.

It is also a mistake to assume the venture capitalists have read your business plan and/or executive summary. It should be remembered that venture capitalists are by their nature very busy individuals. Therefore, in many cases they will have not read your plan. This by no means shows a lack of interest on their part. It may be that they are very interested in the “space” or market you are addressing, understand the competition within this space very well, and are looking for a company that is offering disruptive technology which provides a defendable competitive advantage in the market so that they can make an investment to benefit their investment portfolio. Many venture capitalists I have met or presented to have a very clear idea of the “space” they would like to invest, but at that same time are looking for that company that provides them with appropriate reasons to invest.

Most meetings with venture capitalists are approximately one hour in length. Make sure before your start your road show pitch that you discern the amount of time available for the venture capitalists. If you have an hour, do not assume you have the total amount of time to present. As stated earlier, an appropriate rule of thumb is that for one hour of time; spend 20 minutes presenting your road show pitch and 40 minutes for questions and answers. It should be noted that the venture capitalists, although interested in your pitch and remaining fairly attentive, are often much more interested in getting their questions answered to determine if your company has what it takes to be a candidate for an investment. So make sure that you are prepared to answer many questions from the venture capitalists from all different angles and various types of subject matter. When the meeting is done, make sure you find out what the next steps are so that you may prepare and follow-up appropriately.

Do it again until you are successful

There are many things to learn from meetings with the venture capitalists. Many of which are positive, although not all meetings can be successful. As such, one should not be disappointed if venture capitalists do not show an interest in your company. This could be for many reasons, including the following:

  • Investment Opportunity is Not Right: The investment opportunity is not of interest to the venture capitalist. Since not all meetings with venture capitalists can be successful, take what you learned from the meeting and improve your road show pitch for the next meeting. By using each meeting as a testing ground, entrepreneur’s can only improve themselves and their “pitch” for the next meeting with a potential equity investor.
  • May Not Ring True to the Investor: Many times even though your company and its business plan is a good one, it may not ring true to the particular venture capitalists you presented to. That does not mean that there will not be other investors interested in your company and your business plan.
  • Already Has Similar Investments: It is often the case that the venture capitalists are interested in your pitch because they have invested in or are considering investing in a company with a similar product or service offering in the same “space”. This many times is the case and allows these same equity investors to measure your investment opportunity against the one they are invested in or are considering investing in.

 Often during meetings, venture capitalists have opinions about your company and its technology, products, or services that are contrary to your vision for your company and its future. This is too often the case. This does not mean they are right. In many instances, they are only throwing out opinions to see how you are going to react, and at the same time test your resolve and vision as an entrepreneur. Also, as often the case, if you talk with three different venture capitalists, you will get three different opinions. As with many subjects, “opinions are everywhere”. Do not let this type of response dissuade you from moving your company forward in the direction you choose for your company. It is often smart to consider multiple views, but you must assume a track that you are comfortable with for you and your company.

Finally, you should learn from each meeting and experience with various venture capitalists. Each meeting provides you with the opportunity to improve your road show pitch, as well as hone your ideas and vision for your company. The key here is to move on to the next meeting and “do it again” until you are successful.

The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.” This book is available at www.carlsbadpublishing.com.

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February 23, 2009 - Posted by | Venture Capital

3 Comments »

  1. A very useful blog for start up community

    Comment by MNarayanan | February 23, 2009 | Reply

  2. My career is working with start-ups and early stage technology companies in Silicon Valley as Vice President of Sales. Fund raising is a continuous process and is an important area of responsibility. I was very excited to find Robert Ochtel’s Entrepreneur Blog , “Target Your Funding Audience”. The steps presented should be required reading for entrepreneurs who are fund raising. Robert’s insights are on target! I’ve made a several early stage companies aware of this blog and Robert. This blog presents valuable insights and useful information.

    Comment by Leonard Scales | February 28, 2009 | Reply

  3. Just passing by, btw, your website has great content!

    Comment by Mike | March 1, 2009 | Reply


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