Why Entrepreneurs should approach VC Fundraising much like Selling their Product – by Geoff Mair
Most successful CEOs of technology startups are very good at selling their products but many of those same CEOs completely dismiss effective sales strategies and tactics when they go to raise VC financing. They shouldn’t and nor should you. Using tried and true sales steps will help you reduce the duration and increase the effectiveness of your VC fund raising efforts.
Here’s some common sales tactics that we believe apply equally well to fundraising and will help you make the process more successful.
- Create Compelling Materials
Just as you would never send a sales rep to a customer meeting without a great presentation and product demo, you need to have your investor presentation nailed before you start talking to VCs about fundraising.Lately I’ve heard from many younger entrepreneurs that they feel Powerpoint presentations are a bit passé and while they may not be a particularly modern or sexy way of expressing your ideas, we believe they serve a distinct purpose.VC’s, like customers, need to absorb a lot of information about your company in a short period of time before making a buying decision. A well structured presentation is the best way to achieve that. And like any good customer champion, the VC partner you work with will need to sell your ideas to their partners. The best way for them to do that is to arm them with a great leave-behind deck that makes it easy for them.The first thing VCs will do when they hear about your company is look at your website and look your company up in Crunchbase – make sure they have a great experience when they do and that your messaging in both locations matches the information you present in your investor presentation.
- Target your Audience
Marketing and sales professionals spend an inordinate amount of energy targeting customers who are likely to have an interest in buying their products. They do this so that they don’t waste time and so that the time spent is more productive closing deals.Fundraising, while important, is a huge distraction from the core business so entrepreneur’s raising financing need to minimize its impact. Choosing the right VCs to target is critical.Before approaching a VC and getting into a potentially time consuming discussion, you need to determine whether your company is in their sweetspot – the technology areas in which they invest.If a VC has only ever invested in Enterprise software companies and you have a consumer Internet company, your chances are very slim that they are going to take a chance on you even if they think you have lots of potential. You run the risk of spending a ton of time educating them on the market, just get a firm “no”, because it doesn’t fit their investment hypothesis.Look at the investment portfolios of the VCs you are going to approach and see if they have made multiple investments in your specific technology segment before. That will greatly increase your chances of success.You also need to determine whether your company and the investment your asking for fits into the strikezone for a VC’s investment criteria. VCs tend to focus on investments that fit a certain age and stage of maturity. Larger funds tend to focus on later stage investments that are raising larger dollar amounts.If you are a pre-revenue company raising less than $1 Million and you target a VC that focuses on $10M+ Series C investments you won’t get very far even if they love you because the VC Math just won’t work for them (look for more on VC Math in an upcoming blog post). Look at the size of the fund and the age and stage of companies in VC’s portfolio to determine if you fit into their strikezone.
Now that you have your story nailed in the form of compelling materials and you’ve determined which VCs to target, your ready to start reaching out. In next week’s blog we’ll discuss the next steps of sale in raising VC financing including generating leads, maintaining a pipeline, knowing the value of what your selling, asking for the business and iterating on what you hear.