When you’re a startup, nothing is predictable. Things in startup life can change in a heartbeat: directions pivot, and what was once the company’s mission, could completely change based on a breakthrough you didn’t originally know was possible. It’s kind of amazing when you think about it.
Most of the biggest names in technology came from humble beginnings as startups. Watching the journey of a few people crammed into a room in the back of a garage evolve into a full-blown Enterprise is truly amazing.
But, these stories all had to start somewhere. Someone had to believe in the mission, and then write a check big enough to change people’s lives.
The story of the tiny startup working hard to create something meaningful is one that lives in many of us out here in the technology world; it certainly lives with us at ScaleFactor. After thinking about the journey from our beginnings at my living room table to where we are today, it feels important to share what we’ve learned, how we got here, and the nuggets of truth we’ve found along the way.
Know The Startup Scene
Venture Capitalists see a lot of people every week. It’s their job to sniff out what companies are making noise, and see if there’s a partnership opportunity there. There are a few spread around Austin, (our hometown) but the majority are still out on the West Coast. If you’re looking for funding, get to know who’s investing locally.
Find out what they’re interested in and what they’re looking for. There are VC’s who’ll take breakfast with just about anyone because they want to be plugged in and have a network at their fingertips. This is a perfect way to gather intel on how to make an impact on a tiny group of people who see hundreds of hopeful companies every month.
Grow a Thick Skin
VCs want to know about your company and know that you’re passionate what you’re doing. The best storytellers, those who can bring the importance of their work to life, are the ones who see the most results. But, even the best still get told ‘no’ – a lot. If you want to pitch your company for funding, you need to realize you’ll take a lot of meetings, and countless people will drop you the dreaded “thanks, but no thanks.” Be prepared to stick with it. The willingness to get back up after getting bad news, repeatedly, is what separates the pack.
Do Your Homework
If a VC takes your meeting, it’s critical to come prepared, to know about their team and what they’ve been funding. Is there a certain type of company they tend to invest in? Do they put an emphasis on culture in their portfolio companies? The more you can cite other instances not only in your local market, but also what the VC’s history, you’ll prove yourself as ready vs. some of the unprepared folks who cross the threshold.
Some of the critical things you should know before entering the gauntlet that is pitching to VC’s:
- How many partners are at the VC?
- Who green light’s the deals?
- What have they invested in?
Get Past The Gate
A fifteen-minute phone call essentially means nothing. For a lot of VC’s, they’re multitasking while on the phone with you. There’s email, meeting notes, people dropping something off in the office – you have to make it past that and get the in-person meeting. Don’t rely on email or a phone call to do the work. You need to get in front of VC’s to get their attention. This is probably one of the most critical steps.
If someone says they’ll meet with you or even shows the slightest interest, follow up. Don’t assume they’ll come to you. It won’t happen. VC’s are way too busy. Everyone wants a piece of their attention, and despite being genuinely interested in your story, they inevitably get swamped. A simple follow up phone call or email will make all the difference in keeping you top of mind instead of at the bottom of the pile.
If you’re asked about a realistic view of your cash flow, burn rate, etc., be honest. Lying to save face will only hurt you in the long run. Have a plan in place and be able to explain the more delicate details of your execution strategy, because they will come up. The better prepared you are to solve a bad theoretical situation, the better off you are. Know your revenue model. At the end of the day, you’re on the hook to explain precisely how you plan to make money and grow your business.
Understand That Time is Not on Your Side
Your pitch should last no longer than 10 minutes. Your slides, your story, your plan, everything should fit into that window. By making the story tight and concise, you’ll have the rest of the time to discuss specific aspects of your business while also keeping investors from getting bored. Again, these folks see a lot of people all day long, so keep it sharp and promising. It’ll only help them to remember you.
Explain The Exit
If there’s a knockout move that you can count on to, at the very least, improve your chances of funding, it’s knowing your exit strategy. Many times, startups will pitch a sexy product, showing off the bells and whistles or how the project works better than the competition, but freeze when the VC mentions an exit.
Investors want to make money, and typically, their window is around 5 years. As a startup, it’s your job to explain how that VC group will make a lot of money before the clock runs out.
Have a plan whether it be an acquisition, an IPO, or Licensing. Don’t offer sales revenue or valuation or you’ll be doomed from the gate. These folks dream big and expect you to as well.
If there are any other tips or tidbits we can offer, hit us up on Twitter or Facebook. We’d love to offer whatever advice we can, and if enough people like this post, maybe we’ll even write a follow-up. For everything else, check out the ScaleFactor blog.
Kurt Rathmann, CPA
CEO & Founder, ScaleFactor