How to Find Right VC for Your Startup
The technological ecosystem in the Asia Pacific region is still in its nascent stage, which is why fundraising among entrepreneurs is a new domain. The television headlines may send across congratulatory messages to all those who are successful fundraisers, but there seem to be no solid guidelines to get through the entire procedure. There is no manual yet created which describes the intricate details of navigating into this world of venture capital.
Commonest mistakes between local fundraisers seem to be reiterative – the belief that all venture capital will be raised equivalently. Most of the founders are so eager to receive money, that they open up their collection pots for anyone who wants to donate for the cause. This causes the gross error of loss on strategic value.
Entrepreneurs need to follow some principles to help with their fundraising procedure. These principles will help them to collaborate, find, and succeed with the investors – and gain money of substantial worth.
Understanding which VC is right for your startup and how can one increase their chances of getting them in
There are some specific key stages when the founders should be fundraising. In the initial stage when the entrepreneur is determining the product and market fit, that is when he can opt for taking money from the three Fs, which include Friends, Family, and fools – this is the stage when one is trying to get the products in the hands of the customers.
In the more advanced stages, comes the stage when the entrepreneur is trying to expand or upscale the company – in this stage one needs to make sure of the specialization of the investor. The founder or the entrepreneur has to finish his homework here – is the investor involved in broad categories of software or hardware? Even in these domains, which subdomains does he specifically focus on? Because one needs to know that software stretches from everything like mobile banking, content platforms, to on-demand apps, and more, whereas the hardware covers everything that includes smartphones, electronic peripherals, Internet-Of-Things devices and more.
So of course, if you are a software services company, you wouldn’t want to reach out to the Hardware investors. You would specifically focus on a SaaS-focused investor, who would have the specific experience, domain, and skills to help you upscale. They could even help you with creating a merged presence by bundling their services with yours and reduce customer acquisition costs.
Getting at least 2 out of 3 crucial factors for your VC
Investors always evaluate the entrepreneurs based on certain criteria, similarly, all entrepreneurs should also try to judge the merit of the investors based on certain criteria. There are three important criteria that the investors should be judged upon – Money, strategic fit, and reputation.
Money being the most obvious factor, what you should be checking is what are their usual deal sizes, what are they offering, have they extended deals ever? The strategic fit has been already discussed above in details – how do they fit into your firm is the question that you might need to answer.
And the last one of the criteria – reputation. This one is difficult to perceive. How do the other tech firms look at this investor firm? Look for the footprints well because that translates into dollars. It is an obvious fact that the more reputed a firm is, the better would be the chances that it’ll be able to open up more doors for you.
As much as all these factors are in paper and pen, it is impossible for a firm to check off all of these factors smoothly. There always might be some trade-offs that you will come across – for example, a family office would give you a lot of money as the fund, but will not be able to channelize a lot of connections in your desired domain.
Approach the target VC from a position of power
Make a long list of at least 20 local and regional investors who would meet your desired criteria, and then arrange this list in descending order of your preference. You might be absolutely excited to first try the ones on the top, but that would be the wrong approach. The key would be to work your way upwards, right from the bottom.
The bottom-up approach may seem to be counterintuitive at first glance, but it stands most effective. Your pitch by then is already battle-tested, and it has been sharpened to precision already. The best part is you might already have positive responses in hand to leverage this top firm to acceptance.
If it’s approaching them via the email that is listed on their website, consider not doing it. Reaching out with social media channels, or messaging them is a bad way to start a conversation – better than this strategy would be directly approaching them with personal contacts. Reach out to the office workers, associates, partners or anyone who you would know.
The best part would be to directly contact them from a position of power. Look up mutual friends on social media sites, and use this to leverage more confidence. This approach makes it better and dynamic – you grow from the position of being a founder seeking capital to someone with mutual acquaintances.