How Easy is it to Reach Out to VCs?
The time has come to present your multi-million dollar idea to a VC but you fear being just another guy with a vision and an idea, but no concrete plan to execute it. The fears are not unjust, and a lot of preparation is needed, before you start pitching your idea to investors. Along with your idea, one of the first steps you need to do is to prepare a business plan. Writing a business plan is a tedious process and might require a thorough thought process over how your business would function and grow.
To pitch, first you need to show how the product would look like. It’s great if a product is already developed, then you can showcase it, and share the feedback of your beta customers. If the product is not yet developed, you need to showcase properly how the product will work. Also, part of product showcasing is to answer questions like how your product / service fills the gap in the market, what is the size of the market, what is the competitive landscape etc. and you need to conduct a comprehensive research around how the product can and would succeed.
Secondly, you need to realise that VCs do not just invest in the idea; they primarily invest in the people behind the idea. It’s not just the passion they see in the people but also evaluate if the team is familiar with the nits and grits of executing the idea. Hence, other than an operational team, it’s also a good idea to have an Advisory board/committee/ mentors for your company; their experience and relationship network will help to increase the success rates of your business and make it more attractive for VCs.
Next step is to do the financial analysis about how much money you need and what the projections would look like. If you are not well versed with finance, it is advisable to hire a finance professional who could work with you to develop the financial models. You need to work closely with the professional on the data and assumptions he would use to develop the financial model. He could help you determine the capital you would need to grow your business at different stages.
Once in the market, you may expect raising a lot lesser than what you initially planned to raise. This may prompt you to keep a large buffer in the projections; but simultaneously, this will reduce your stake as the investor will have to invest more. You need to walk the tightrope walk between fund raised and equity dilution; it’s always better to have a buffer as cost and time overruns can then be handled better.
Once you are ready with the above mentioned steps, it is time to prepare the business pitch / presentation and approach a VC for the same. But approaching a VC is a tricky step. You can approach a VC through a banker, a lawyer, or a consultant who has experience in pitching to investors on behalf of people looking for funding or who already have a network around investors. Willingness of these professionals to pitch / approach investors on your behalf may help you getting some credibility in getting the funds raised. They can also help you fine tune your business plan, and guide you in preparing the presentation, conducting research, and also, guide you in terms of what type of VCs would be helpful for your company in the long term. While, your focus remains on the operations of your newly started business, the expert works on helping you in the tedious process of raising capital. However, you need to work hard alongside these professionals in preparing your pitch as these people would be selling your vision on your behalf. Most of these professionals may not put a very huge burden on your low cash budgets as they might charge a small fixed fee for the services they provide plus a percentage of the capital that you are raising on a success basis. However, you need to be careful in presenting your business ideas to such professionals and a research about their credentials is a must. It is also advisable to always sign non-disclosure agreements with them.
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