Obtaining adequate financial funding is critical in building a prosperous tech startup. These strategies can help you capture the attention of venture capitalists looking to invest.
Right now, there is a lot of talk about us being in the middle of a tech bubble similar to that of 2000. Venture capital recently hit an almost 15-year high with $17.5 billion in the second quarter of this year. Yet, the reality is, venture capitalists are doing far fewer deals than they did 15 years ago.
While the amount venture capitalists will put into companies this year is on track to exceed last year's $49 billion, it will be nowhere near the $144 billion (altered for inflation) that was spent in 2000. So no, we're not in a bubble. Nonetheless, there is a lot of money on the table. While venture capitalists are coming in at a later stage these days, tech startups still offer a great opportunity for returns on investment.
So, how do you make sure to attract that venture capitalist interest? Here are a few secrets of funding.
1. Build Relationships
Business is always about relationship-building, and it pays - often literally - to start early. Begin by figuring out if you have any personal connections for an introduction. Even if you don't know someone personally, there are plenty of methods to ask for 15 minutes of spare time. The best way is to approach the meeting as simply asking for advice. It's a tried and true method of networking.
Also, just like any meeting, do your background research. Go through investors' social profiles for any shared interests or experiences. Relationships are built upon common ground.
2. Practice Your Pitch With Someone You Trust
I can't stress this enough: you need to rehearse your pitch multiple times with (Read more...) people who know what they are talking about.
In the first season of one of my favorite podcasts, Startup, Gimlet Media co-founder Alex Blumberg meets with Silicon Valley legend Chris Sacca to give him his pitch. It quickly turns into a practice round. When Alex flubs, Chris gives the pitch back to him, showing him how it's really done. Although he passes initially, Chris gives Gimlet the opportunity for a second chance with his partner. I don't think I have to tell you that there's a happy ending.
Find a business advisor with deep knowledge of the startup world and then practice your pitch. Stay open to feedback, and by the time you're really asking for money, you'll be a pro.
3. Demonstrate your Passion
It's completely normal to feel nervous when you finally get in front of that venture capitalist. Just don't let your nerves hold you back from showing just how passionate you are about the idea you're selling. If you want to be a successful entrepreneur, you need passion. Investors will want to see that right away; you're playing with their money, after all.
4. Get the First Investor on Board Early
Try to get ahead of the game. Ideally, you'll be pursuing funding about six to nine months out. Even prior to that, you'll be sowing seeds of relationships with venture capitalist firms. When you do start pitching, keep in mind that investors tend to follow other investors. They want to see proof of other interest as a sign of confidence, and they certainly don't want to miss out on the next big thing. So while the hardest investor to get is that first one, know that once you do bag it the rest will follow.
5. Find the Right Fit
While we all want the Chris Saccas of the world, it doesn't always make sense to go straight to the top. Invest your time with investors who make sense for your business. Look into what businesses the investor has given money to in the past, what views he or she holds, how well he or she understands your industry, and what sort of equity will be shared. As Richard Branson said, deep pockets are "not the essential quality that will sustain the relationship and business in the long term." Be smart about who you go after.
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