Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Do Not be in a Hurry to Get Venture Funding, You will not like the Results

All entrepreneurs I have met are in a hurry to secure venture funding for their start-up companies.  Even if they only have a vague idea of what they will be developing, do not really know how much funding they require, or have not really thought through their product offering and if it offers a long-term competitive advantage in the market and hence the potential for substantial returns for their investors. Never the less, they believe that they are fundable and want the opportunity to present their “half-baked” idea to these same venture capital investors.  This approach to engaging with venture capital investors will only result in a funding experience that will not be pleasant for these same entrepreneurs. With this approach, entrepreneurs will often run into the venture capital “buzz saw” and have a needless to say unsatisfying experience. In the end, they will not receive the funding they desire and walk away disenchanted with the venture funding process. This article outlines what can happen when you are in a hurry to talk with venture capital investors – the end results will be something you will not like.

Do Not Go In Unprepared

Going into venture capital investors unprepared will not bode well for your objective of securing funding from these same investors. Being unprepared means that as an entrepreneur, you do not have a well thought through investor presentation deck that addresses all of the issues investors expect to see.  In addition, you do not have your story down pat.  That is, your investment story is not clear and concise, nor does it get your point across such that the investors understand the “value proposition” of your product offering to the market and why you can achieve a sustainable, long-term competitive advantage in the market.  Remember venture capital investors are looking to achieve substantial returns on their investments that are commensurate with the risk they are taking.  Anything less will not get their attention.  So, as an entrepreneur, you need to understand what the venture capitalists are looking for, and if your investment offering meets their needs as well as their investment criteria.  Going into venture capitalists unprepared with an investment opportunity that is anything less will not result in a pleasant experience.  And, consequently you will not obtain your desired result, securing funding from these same investors.

Do Not Learn on Your Feet

Venture capitalists often ask tough questions to see if you have done your homework on your start-up company, its product offering, and the overall investment opportunity. Some of these questions are designed to get a reaction; others are designed to see if you really understand your markets and the competitors within these same markets.  The one thing you do not want to do when you are presenting to investors is to make up answers or in essence “learn on your feet”. You need to be able to answer all questions directly or indirectly, based on your market expertise and drawing logical conclusions that will satisfy the investors.  Not knowing the answer or learning about various aspects of your market, be it your financial model, competitors, or new product offerings, etc., is not something that will impress your investors. To gain confidence in your start-up company and its executive team, investors need to believe that you know everything about the markets you will be addressing.  You are the “expert” in the room.  Learning on your feet, in front of the same individuals you are expecting to invest in your company, is a big mistake.  Finally, if you really do not know the answer to the venture capitalists’ questions, you need to tell these same investors that you do not know the answer and will get back to them.  Trying to make up an answer will not endear you to these same investors, as they probably already know the answer to their question and will be able to see through any made up answers. So, being in a hurry to get in front of venture investors often results in one learning on their feet and as a result, again will not allow you to secure funding from these same investors.

Do Not Make a Bad First Impression

The venture capital community is a small community, and as such you will not get a second chance to make a first impression. If your first set of meetings with a number of venture investors does not go well, more often than not you will not get a second chance to present your investment opportunity to these same investors or any venture capitalists for that matter. Why, because venture capitalists frequently talk amongst each other about their investments and the investment opportunities they encounter.  If there is a good deal out there, they all want to be the one who found it.  On the other hand, if there is a bad investment deal out there, they do not want to waste their time on it.  Remember, venture capitalists are very busy and are not just waiting around to hear about your investment deal.  They want to only have the best deals presented to them and as such this is generally a one shot opportunity.  Making a bad impression the first time out and you will not get a second chance. So a missed first opportunity may result in not being able to secure funding for your start-up company. 

Entrepreneurs are often in a hurry to get in front of venture capital investors.  They have an inherent desire to get going, even when they are not ready to talk to these same investors.  Being unprepared, learning on your feet, and making a bad first impression are all symptoms of not doing your homework before you get in front of investors. This will not only result in an unpleasant experience, it will result in your start-up company not being able to achieve its objective – securing venture funding.  So as an entrepreneur, take your time and prepare yourself and your start-up company before you get in front of investors.  If you are in a hurry and do not do this, you will not like the results.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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November 23, 2009 - Posted by | Funding Requirements, Venture Capital, venture finance, Venture Funding | ,

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