At a certain stage in your business, you are going to have to raise capital. It might be the case that you need to get funded now or you are working on an idea that you know you will not be able to get off the ground except you are able to secure the necessary investors to buy into your plans. To cut a long story short, sooner or later as an entrepreneur, you will need money to get stuff done hence you will have to roll up your sleeves and get to work raising capital.
This is the reason I invited Stephen Silver to come on my show to share his insights on the topic. He is an expert in raising venture capital for small business owners and also the founder of MAVN Funding Advisors; a company that brings clarity to entrepreneurs by guiding startups through the treacherous waters of the venture space.
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During the interview Stephen discussed:
- What steps you need to take when trying to raise venture capital funds
- How the venture capital space has changed over the last couple of years and how to use this knowledge to your advantage
- What types of companies Venture Capitalists (VCs) are looking to invest in and why
- What types of return of investment VCs look for in companies that they invest in
- Why VCs are now investing in the smaller companies
- Why getting in revenue (profits) before going out to seek venture capital funds is a smarter choice
- What the Common traits are for those companies who successfully get funded
- Why simplicity is key missing ingredient to raising funds
- Why you need to be thinking like an investor when looking for VC funds
- How to make your presentation clear and concise with the type of investor package that VCs like to see
- How mistakes you make during the formation of your company can delay your venture capital funds
- The difference between debt investment and equity investment
- Why building relationships with investors is essential to raising venture capital
- Why funding raising events is a great means to be in contact with potential investors
In his own words:
What have I done to raise capital?
Having started off working for a major nationwide angel investor group, I was able to quickly learn exactly what investors liked to see. I spent my 3 years at the angel group screening and preparing entrepreneurs to pitch to our 250 local investors. After leaving the angel group, I started a funding advisory to work with both entrepreneur and investors in raising capital and running due diligence for investors. Funding rarely happens overnight, so I tend to work with clients throughout a major part of their early stages.
7 keys to successfully raising venture capital funds:
- Have a clear business plan: Realize business plans are NOT meant for investors, but more of a check that investors will look for. That said it’s convenient to have an investor set of collateral including a 1-2 page executive summary and Powerpoint presentation
- Understand the investors you are going after: Understanding the investor’s perspective is a critical part of raising capital. Markets change and so do investors taste in investments. Understand investors are not investing in ideas, but looking for a relatively safe, short term, high reward investment. They’re not looking to dump $1M into an investment that may or may not pan out in 10 years. Also keep your valuation reasonable; investors will pound you into the ground if you have an unjustifiably high valuation.
- Get in revenue: What I really mean here is reach your proof of concept, in most cases this is selling to your customer. Investors want to see traction, not talk. This may require a friends and family round to reach proof of concept.
- Keep it simple: Investors like simple business models. If you can convey what you do and how you make money without taking the investor through convoluted and complicated revenue models, you will have a much better chance of being funded then most.
- If you’re going to pitch to angel groups you better be the best deal on the market: With only 2 deals funded by southern California’s largest and most active angel group this year, you need to understand your chances are slim to none. If you’re going to invest time into pitching to groups of angels, you must be the number one deal they see that month… Make sure your presentation not only has the core information investors want, but give the PowerPoint some sizzle! Here is a basic outline of what they want to know – Company overview, industry size, market size, market pain, value proposition (or solution), marketing plan, basic revenue projections, management team, and offering (how much you’re asking for).
- Solid management team: Investors are betting on the Jockey NOT the horse… have a team including advisory board that has a deep understanding of your industry, and have proven success.
- Do not rely on funding: If your idea cannot succeed without funding, you may want to figure out a way to either get in early revenue, or try a different approach. You should be able to bootstrap your company to first revenue without funding…
Connect with Stephen Silver:
In 2009, he raised over 13.2 million in funds for startup companies. He boasts a number of noteworthy success stories and is readily available to talk in greater depth about these deals and the keys to success for raising early stage/seed capital.
On his company website www.MavnFunding.com
On Twitter @silvrtone
On his Facebook profile
Question for you:
- What steps have you taken to raise venture backed capital for your business and what challenges have you faced?
