By Brian Mitchell, CEO & Managing Partner.
Venture capital firms want the same thing the entrepreneurs pursuing them want – money. That said, way too many “pitches” for capital from the entrepreneur to the investor exclude a salient explanation on how they’re going to make money. Monetization is defined by Webster’s as “to coin or convert into money.” You, the entrepreneur, need to convert their money into multiples of more money. If this isn’t incredibly well planned, you’re never getting their money to prove it. If you need capital then you have some questions to answer:
1. How much capital do you need/want? What will it be used for immediately and for the near/mid-term? What is the month over month burn forecasted to be and when will it ebb? Getting $500k in seed funding is much different from the $5M A round or a $20M B+ round.
2. If you’re pre-revenue, when will you begin generating revenue? How will you scale? What resources correlate with that scale? Be specific! Unless this is your third venture and the previous two enjoyed double-digit- multiple liquidity events, the investors require details up front just to give you a deeper look.
3. Who are your competitors? What is their market share? What is working/not working for them? Why will the buying market care about your solution over another? I’ve heard Harvard MBA’s say things like “better technology” as if that carried weight. It doesn’t. You need to be comprehensively aware of all market factors because the better VC’s already do and are experts at identifying hollow BS.
4. How will the VC’s get their money back x 8+? This is the singular question they truly want answered, however if you can’t clearly articulate your way through the basics previously mentioned, this question won’t earn VC deliberation. They’ll be on to the next possible investment.
These are simple and common sense preparations any entrepreneur serious about raising capital and building an advisory relationship should understand. Nevertheless, we still see a LOT of potential deal flow from “wantrepreneurs” who can’t answer baseline questions and we in turn can’t introduce to venture colleagues as credible investment opportunities. Get deep in the details, know your business conditions, and give the investor enough confidence to perform deeper due diligence on your company.
Their money is not your money…yet. Be smart.