Growing Your Business: Getting to ‘yes’ — the odds are long, but not impossible
I’m often asked how many opportunities our venture capital fund looks at, compared to how many we fund. The answer I used to give, when I worked in the Boston venture market, is 100-1 — we looked at 100 deals, worked on 10, funded one.
In northern New England, the numbers are slightly different (40/8/1), in large part because there are fewer opportunities in the region and most of the opportunities we see are opportunities we proactively uncover.
Qualified opportunities, as you might imagine, have a higher likelihood to get our attention, and ultimately our capital. Opportunities that come over the transom have much lower odds of getting a look, let alone a more thorough read.
You can do a number of things to improve your odds of getting attention. To start, when approaching a venture capitalist, check out the fund’s Web site, paying particular attention to:
• Investment criteria: Funds have certain preferences for investment size, industry sectors and business models.
• Portfolio: Prior fund investments can provide a good sense of what gets a fund manager’s heart beating faster. A cursory look at these businesses gives you a good sense of sector interest. To go the extra mile check out the portfolio companies’ Web sites to better understand their business models, team backgrounds, etc.
• Partners: Have a look at the fund partners’ backgrounds, from education to work experience. Where they come from might give you a sense for where their preferences might sit on a given sector or opportunity.
Having done your homework, how do you get in the door? Find someone who knows the target partner you’d like to approach and get him or her to either directly refer you to the VC or ask to use his or her name in an introductory e-mail or phone call.
If you don’t know someone who knows your target venture capitalist, not to worry. Consider contacting portfolio company founders/CEOs to get their view of the partner you’d like to approach. Small company CEOs tend to be more accessible than VCs. Explain that you’re doing your homework on which VC to work with and you want to understand their perspective and experience. Most will be happy not only to give you useful insight but may well give you the warm intro that will assure you a call back.
Other paths include contacting the law firm with whom the fund may work — lawyers are one of the more active conduits to VC access. If you’re feeling creative, look at the partner’s personal interests to see if that gives you a path.
With only a handful of funds based in, and investing in, northern New England, getting a return call (assuming you’ve done the homework) is not hard. You can count the venture funds focused on New Hampshire on one hand — our fund, Borealis Ventures, Vested for Growth (near equity) and Merchantbanc (debt fund).
Once in, your work has just started. Here are a couple of tips to improve your odds of avoiding being one of the 99 turn-downs:
• Critically assess your management team: Experience counts in building a company, so investors will be looking at your background to see if you’ve got a track record of success in early stage start-ups. Not having the best, most experienced team will not prevent you from raising money. Recognize, however, that investors will need to factor your experience into the discussions and will want to mitigate risk by ensuring that you are realistic about your current and future roles as team members.
• Be realistic about value: Venture investors see risk in two primary flavors: business (management, market/competition, financial, product and technology risks) and stage (pre-revenue, early revenue, later revenue, etc). The greater the business and stage risks, the greater the discount in value an investor needs to compensate for that risk. Most entrepreneurs we meet assume that valuation is driven by the size of the market opportunity and the quality of the technology or product. Both are important business risk factors, but they do not in themselves define the risk of the opportunity or the value of the business.
• Write/articulate well: Many opportunities for funding are missed due to poor communication skills. There are plenty of resources to help you craft a business plan or executive summary that shows off your company in the best possible light (see “What Matters Most In a Business Plan,” June 22-July 5, 2006 New Hampshire Business Review). Beyond the written word, it’s incumbent upon you to develop a presentation style that is tight and tailored for venture investors. Marc Andreeson (founder of Netscape, among others) has a terrific blog (blog.pmarca.com) that spans everything from the PowerPoint to the pitch.
Finally, remember that a “no” today is not a “no” forever. This doesn’t mean you do what my 11-year-old son does and come back with a “please” 17 times after the first “no.” It means you listen well to the critique you’ve been given and then consider a re-approach.
The odds are long, but there are a lot of ways to move you from the ocean of “no’s” to the river of “maybes.” Keep at it.
Michael Gurau is president of CEI Community Ventures, a Maine-based venture capital fund that operates in Northern New England. He can be reached at email@example.com.