- Ready for prime time? Is your story compelling enough to interest venture capital investors? Some businesses, even if they succeed, simply will not get large enough to deliver the kinds of returns that venture investors seek. Do you have demonstrable results? Customer traction? Patented intellectual property? Consider raising a small amount of money from angels or from friends & family first in order to reach important milestones that will make your business more marketable to venture firms. Consider whether you want to raise money in the form of equity (via preferred stock) or in the form of a convertible security such as convertible notes or SAFEs. To learn more about convertible notes, click here.
- Documents. Prepare three documents: (i) a thoughtfully reasoned business plan; (ii) a one to two page executive summary of the business plan; and (iii) a presentation. A business plan should include a business model, detailed information on your target market, financial projections and assumptions, and the team. Even if most investors do not read the full plan, the process of writing it will help you better tell your story and prepare for questions from investors. Be sure that you can defend each fact, assumption, projection and conclusion that you include in these documents. If you are not a good writer, ask a friend who can help or hire a good writer.
- Build your core team. This is critical to investors, and it is important to articulate clearly your background and experience, who has joined the team and who will likely join the team. Do the founders have money or meaningful “sweat equity” in the company? You want to impress upon investors that you have the committed team members necessary to take the next steps toward your vision.
- Build your team of advisors. Surround yourself with good advisors who are experienced in raising venture capital, whether board members, attorneys, accountants, professional investors or industry executives.
- Target list. Create a target investor list using key criteria including: (a) industry sector; (b) investment stage (i.e., Seed, Series A, B, C, etc.); (c) geographic proximity; (d) amount to be raised; (e) comparable/competitive portfolio companies; and (f) potential investor contacts. Find out as much information as you can about the current investment status or activity level of your target investors.
- Practice your pitch. Find a friendly audience (including at least one experienced investor) who can help identify gaps and weaknesses in your pitch. Practice out loud. Be sure to have a 30-second version, a three minute version and a fifteen minute version. You must be able to articulate your vision succinctly and in plain English. When you make your actual presentations, space them so that you can incorporate feedback and suggestions in subsequent pitches.
- Competition. Know your competition and be prepared to distinguish your business model. Saying that you do not have competition is the wrong answer.
- Understand your capitalization table. If you don’t understand the basics of a corporation’s capitalization, then ask someone to explain it to you (e.g., authorized vs. issued stock; reserved option pool vs. granted options; preferred stock vs. common stock). Prepare a detailed capitalization table. Know exactly who owns each share of stock in your company. Document options and stock issuances right away, and avoid vague, open-ended or ambiguous equity promises, such as offering someone a percentage of the company—be clear that you are offering them a percentage of the company as of a particular date or event. Don’t leave equity arrangements unwritten. Learn more about cap tables in our article What Is A Cap Table, Why Do You Need One and What Should It Look Like?
Last reviewed: April 12, 2021