Attracting VC funding is one part financial data and one part successful storytelling. Muddle in some ice. Shake and serve.
As a bootstrapping startup, no doubt you’re looking to attract an angel investor to help secure your growth and realize your vision. The competition is fierce, however, so you can’t simply rest on your early successes and great ideas – if you can’t successfully convince an increasingly wary venture capital investment pool that you’re going to change the world, you’ll soon find yourself being one of the 90% of startups that fail.
The need for financial success coupled with successful marketing to build a successful startup is reflected in a 2020 Failory survey. The survey reveals that 75% of VC-backed startups will never provide a profit to investors, and 30%-40% of VC investors will actually end up losing their entire investment. On the marketing side, 22% of startups cited marketing issues as the reason for their collapse.
How do you plan to change the world? How are your executive team and your business model poised to do so? And what successes have you already achieved as a business? These are the questions that all investors will want to have exemplary answers to before they’ll consider funding your seed round.
As we enter a new year many investors will now be looking to bolster their pipeline and look for the next unicorn company. We work with plenty of portfolio companies here at Greenough Group and thought we’d share some of our best practices for success in attracting Silicon Valley startup funding.
Elements to Focus on to Attract VC Funding
You want to ensure that you research the VCs you’re approaching to ensure their industry focus and typical stage of company investing model is in line with your situation. You’ll make a much better impression if a VC already understands your business segment and how your business model fits within the market landscape.
Your Business Model
It’s not enough for your startup to have a paradigm-shattering idea, you also need to have a sound business model. While many venture capital firms may ultimately choose to have a say in how your model evolves, you need to prove upfront that you’re already thinking about how you fit into the market.
That’s not to say you need to develop a comprehensive 5-year plan – Most investors are considering hundreds of prospects at any given time and wouldn’t read it anyway. You just need enough evidence that your model is profitable, repeatable, scalable, and predictable. You should look to answer the following questions:
What is the size of the market and how much can be realistically captured?
Who are your primary competitors, what traction have they gained, and how do you compete against them in regards to the product, price, and placement?
Do you have fully realized products? Or minimally viable products as a proof of concept with a timeline towards competition?
What about your company’s product, ethos or culture gives you a competitive advantage?
What are the barriers to entry in your market?
Do you have business valuations, financial projections, and a company roadmap?
You may want to consider engaging CFO consulting services when you’re figuring out how to best appeal to investors. Rapidly emerging technologies and markets are disrupting business models just as rapidly, and a CFO is a perfect executive to identify new avenues for success while simultaneously performing a cost-benefit analysis
Bringing in a seasoned third-party executive consultant not only provides you with a completely unique perspective but the benefit of them having driven success for dozens of other startups just like yours. They can also help ensure that your startup’s accounting is in line with best practices and streamline financial processes.
No startup can truly soar without a thorough understanding of your potential customer base and a plan for how your product or marketing will attract them.
A helpful exercise for any startup is the creation of customer profiles – after all, you can’t successfully market without them. Who are they? What are their challenges? Their worries? How can your product or service help them better than your competitors’?
You’ll likely have multiple customer profiles to account for different demographics you are looking to appeal to. A customer profile should include the following factors – it can help to write them as if you were thinking about an individual customer within that demographic rather than the entire group: