How to get venture capital money for your idea
There’s a lot of venture capital money out there. And, take heed founder, creator, inventor or entrepreneur: There are plenty of ways to make sure you don’t get a dime of it. ❚ Matt Murphy, a partner at Silicon Valleybased Menlo Ventures, still recalls an entrepreneur and CEO seeking an investment who did exactly the wrong thing during a presentation. The CEO set up the pitch, turned it over to his management team and emailed for the entire meeting. ❚ “Don’t do email. Be engaged. You really only have, in some of these meetings, an hour to get to know each other and make a pretty directional decision,” said Murphy, whose experience includes being among the first venture capitalists to attend board meetings and other company events at Google to monitor an investment in the company that a previous “VC” firm he worked for had made in the search giant. ❚ The U.S. start-up economy is booming. Venture capital and “angel” investment firms invested a record $82.87 billion in 2017, according to data from PitchBook and the National Venture Capital Association. This year is on an even-faster pace: VCs invested another $28.24 billion through March. ❚ It can take years of work creating a network, mentoring and pitching before an entrepreneur gets the the big infusion they need from an investor they trust. Most craft dozens, even hundreds, of pitches. ❚ So how do entrepreneurs avoid disaster? Here’s some advice on what NOT to do (and a few things you should do) when pitching VCs or Angels from people on both sides of the table: 1. Don’t be rude or cocky.
Confidence and rudeness are two different things. Even if you are a rock star in your industry, don’t act like one.
“We’ve had guys that come in the room with a cigar in their mouth and put their feet up,” said Santo Politi, a general partner at Boston-based Spark Capital. “That’s not a good idea.”
Don’t announce who will buy the company, or when you plan to exit the business or do an initial public offering, both Politi and Murphy say.
“That’s just a red flag,” Murphy said.
2. Be on time. And don’t waste it once you’re there.
Peggy Wallace, a managing partner at Golden Seeds, which invests in earlystage companies led by women, recommends entrepreneurs tailor pitches to the time allotted and be willing to stop to answer questions.
“You have to work within what you’ve been told. Whether you’ve been given 10 minutes, 15 minutes, people really mean it,” Wallace says.
Sheri Orlowitz, founding partner at Artemis Holdings Group, says don’t talk politics. Stick to the task at hand.
“Do not be late. Listen. See if the person is interested. There’s nothing worse than boring someone to death. Under- stand why they chose you — don’t just launch into your pitch,” Orlowitz says. “Warm up the room. Do not ramble. Do not run over.”
3. Know your audience. Don’t pitch a business area where the firm doesn’t typically invest.
“I’ll get emails for medical devices. Spark doesn’t invest in medical devices,” Spark’s Politi says. “Do a little research.”
Golden Seeds’ Wallace says once in the room, know who you are sitting across from. Chances are they see a broader range of businesses than you do.
Entrepreneurs “will say things like ‘I’m not sure if you know anything about artificial intelligence.’ Entrepreneurs should assume they’re speaking to sophisticated people. It’s not good to assume the audience might not have any expertise in something.”
4. You have competition. Don’t pretend otherwise.
“It shows a lack of rigor in your thinking,” Menlo’s Murphy says. Entrepreneurs “should really say, ‘Here’s what the competitors do well. Here’s a gap in the market, a segment that’s not served well by these companies’ and how they’re going to do things differently.”
Debi Kleiman, executive director of Babson College’s Arthur M. Blank Center for Entrepreneurship, gives the same advice to her students.
“Don’t say, ‘We don’t have any competition.’ If you say that, you haven’t done your homework,” Kleiman says.
5. Be ‘coachable.’ But don’t give up your vision.
Starting in the initial, or “seed,” capital round, entrepreneur Carolyn Yarina, CEO of Baltimore-based Sisu Global Health, a maker of a device that recycles a patient’s own blood, “worked out where our red lines were” once a month. That way, she knew “what terms we were willing to give up. And in the exchange gamed out some of the scenarios. ‘If you need this, then we need that.’ ”
Jill Kravetz, former founder and CEO of Boston-area nail salons MiniLuxe and online beauty marketplace Gloss 48, says it’s easy to get overwhelmed by advice. “It’s really easy to take feedback from all these people who really don’t know anything about your business. You’re living and breathing it every day,” Kravetz says. “Do not get sidetracked.”
6. Money is important. But don’t focus only on how big an investment you can get.
Yarina says she vets her investors each step of the way, keeping in mind what they can offer other than money. She has secured an investment from DreamIt Health, a joint venture of Johns Hopkins University and the Abell Foundation and won a $100,000 pitch contest from Rise of the Rest, a campaign spearheaded by Steve Case, AOL founder and CEO of venture firm Revolution.
“Don’t only think about the money,” Yarina says. “Some of our best investors who have opened the most doors are not always the ones who have put in the most” money.
7. Do pick your investors carefully.
Both sides of the table must be comfortable, says Scott Friend, a managing partner at Bain Capital Ventures.
“For the chemistry to work, each party needs to feel that the other is someone he or she could work well with, could learn from, and is inspired by,” Friend says.
Remember, these will likely be longterm relationships.
“Whoever you eventually raise the money from, in some ways you’re almost getting married to those folks,” says Derek Holt, formerly of the Startup America Partnership team, a non-profit initiative started during the Obama administration and now president of K4Connect, a Raleigh, N.C.-based software company tailored to serve the elderly and disabled.
“This is going to be a three-, five-, seven-, 10-year relationship.”
8. Make sure you know who’s boss.
Randy Battat, CEO of Boston-based PreVeil, an encrypted file storage and sharing system company that recently got an infusion from Spark, points to a different version of the “golden rule.”
“The one that has the gold makes the rules. And it’s very important to know who has the gold,” he says.