Understanding Venture Capital – 4 tips to get into that first meeting
Written by Paul Maher
While the US remains supreme in the world of Venture Capital, the UK still punches well above its weight, and is the second largest recipient of Venture Capital funding in the world. Perhaps unsurprisingly, Venture Capital firms are increasingly choosing to launch or be based out of the UK.
So if you have a startup that needs to turn the heads of the likes of Octopus Investments, Lakestar, Episode1 or Passion Capital, you need to step up your game. Let’s start at the beginning.
In short, Venture Capital is a type of equity investment usually made in rapidly growing companies that require a lot of capital or startups that can show they have a strong business plan.
For those uninitiated in the deeper world of tech Venture Capitalists, you’ll soon learn it is a world that exists for the most part, very publicly, just out of grasp. Venture Capitalists are super smart, output-led individuals and experts in their field. Think Dragon’s Den, with more money. Indeed, like The Dragons, they’re not the most approachable individuals and sometimes get a bad rep because of this. However, if you had a fund of £100m and a number of blank cheques, you can be sure many would come out of the woodwork for a piece of it. The result? Cut through is hard and only the best make it. Go figure.
What has any of this got to do with PR? Quite a lot, actually. Indeed, the way a startup presents itself to the market, (especially if it’s founders haven’t ruled out VC funding) is a critical measure of future success. Starting out on the wrong foot in this sense is likely to have serious ramifications further down the line.
Beware Venture Capital for the masses.
Startups are synonymous with innovation, disruption and frankly, being a bit swish. They are also incredibly numerous. In recent years, we’ve seen crowdfunding become a great way to get validated as a business and financed but what it gives with one hand it can easily take with the other. Crowdfunding may provide money, but no expertise – it doesn’t help startups tool up or learn to cope with demand. The result? All hype + no product = broken promises.
The fact is, most startups deploying on the likes of Kickstarter, Indiegogo, rockethub, fundable, pozible, fundanything (you get the point) will flop, but some get serious cut through. After all, the money rolls in and overnight you’ve got a valid business, right?! Not quite, but you’ll forgive people for saying that’s the way it looks.
Equally, if you are a Kickstarter startup that has taken money and can’t fulfill orders, look forward to a PR nightmare. Just a heads up. Not even strong messaging will bring you back from that, don’t leave investees waiting 5 years for their purchase to be shipped.
You are now a genius.
We never thought it was weird to hail a cab in the middle of the street before Uber came along and showed us we were behaving oddly. This is the kind of thing VCs look out for. To my mind, a winning startup is one that creates a product / service that is inherently unique. Assuming a decent product (and subsequent development plans) are already in place, the next generation startup needs to demonstrate genius level understanding of the market and category it is posited in. Can’t do that? You’ve already failed.
Be a star. Make the im-possible.
Remember, not everybody will take one look at your offering and start jumping for joy, the benefit may seem unclear at first. Sure, you’ve got the fancy website and followers on social – but do they get what you do? Can you explain it in 5 words? You can? How about 3? Can you put together a bylined article for a major publication and transmit, in simple terms, the problem your company solves while tying into an industry trend?
Part of being a star is having ability to anticipate tough questions. Why is your business required? By whom? Why you? Why now? What makes this one different? Do you know the history of your space, and crucially are you defining where it’s going? Who is your first customer? If it all goes well in 10 years time and you’re on the verge of selling your company, who is your last customer? All of this and more needs to be demonstrated within every communication and crucially, in the first meeting with the VC.
Get ready to be a mind reader.
There are certain things VCs will want to know. Aside from the numbers, expertise, gravitas and relevance of your startup, you’ll need to demonstrate your product actually works. If you’re one of those Kickstarter failures, you might want to ‘fix and ship’ before getting to this part. Take this example: Let’s say you’re a purveyor of the hardest phone cases the universe has ever seen. Don’t just tell us, show us. Fire it out of a cannon, fish it out of a volcano or drop it 5 times off of the Empire State Building. Demonstrate technical credibility.
The fact is, If you have a growing startup, at some point you will likely seek Venture Capital funding. Unlike angel investors, who typically write checks between £10,000 to £100,000, VCs have the power to write multi-million pound checks. This is why it quite literally pays to know your market, to have a decent product and play your part in defining the space in which the product sits.
Part two of this piece will look a little closer to what those elusive VCs are on the lookout for and how I think they’ll be investing their money in the future.
To find out more about how to define your startup, get in touch.