How to Approach a VC

There is no shortcut. There is also no magic formula. The key is preparation and in knowing your market, product/service, and in communicating the essence in a crisp manner.

We now know what to keep in mind while contemplating a startup, while hiring, and while writing a plan. And you’ve kept all these and more in mind while structuring your startup plan. It’s now time to raise money to fuel your entrepreneurial aspirations. You are now ready to approach the Venture Capitalist.

The first thing to keep in mind while approaching a VC is to be conscious about time. What that means is that you have to make an impression in the first few minutes. Enter the legendary and apocryphal “elevator pitch”. What this means is that in the time it takes the VC in the elevator to reach his office (which floor would that be on?!), you need to have sold him/her your concept! Essentially, in about 2 minutes or less you are expected to clearly state the raison d’etre for your startup’s existence.

This can only happen if you have a crystal clear understanding of the market and the opportunities. If you cannot explain what your company is all about in a few short crisp sentences, you’ve lost the attention of the VC. This also means that should be a great communicator.

But how does one reach a VC? As usual, there are good ways and bad ways. A bad way is an approach that shows you are ill-prepared or that you have not researched the VC adequately.

For example, is your business in the VC’s area of expertise? Does the VC invest in the stage your company is in? Does the VC have any investments in a competing area? Does the VC typically invest the amount of money you are seeking? etc etc

As you’ve probably guessed by now, sending in a well-researched business plan consequent to a referral is a good way. A VC receives so many plans that that to get attention, a referral is probably the best way. A referral also implies that some kind of quality check has been done. So how does one get a referral? One way is to use the good offices of the Advisory Board or some other intermediary.

In cases, where a cold-contact just has to be done, the Executive Summary should be first sent in. This is a 2-3 page document that captures the profiles of the key team members, the market need / opportunity , the unique offering , the business model, revenue projections, and some info on how much money is being sought and for what purpose.

This should be a well written, professional and crisp document. Make sure there are no spelling mistakes! If this is of interest, the VC will probably call you for a meeting. Go well prepared for the discussion. As the old saying goes, “you won’t get a second chance to make a first impression”!

Approaching a VC should be the job of the CEO. The CEO makes the elevator pitch, the main presentations and answers all the key questions about the company, the market, the positioning of the company, the road-map etc. It is a good idea to meet the VCs with the key team members in tow as it gives the VC a good perspective of the dynamics and competencies in the management team.

Make sure the team members are well prepared. For example, the marketing person should be able to answer questions about the market, positioning, customer/prospects, pricing etc.

In VC presentations, remember you are unlikely to get more than 30 to 40 minutes to make your case. Again, you should demonstrate focus. In your idea and in your execution plan. Practice with a few “friendly” VCs, take inputs from the Advisory Board, talk to experts and those who’ve “been there, done that”. This could be critical!

There is no shortcut. There is also no magic formula. The key is preparation and in knowing your market, product/service, and in communicating the essence in a crisp manner.

All the best!

This article was originally published in VentureKatalyst, India’s first e-zine aimed at entrepreneurs, started by Sanjay Anandaram.



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