What Venture Capitalists Want You To Know About Raising Capital
If you’re a founder, at some point you would have thought about raising capital for your business. However, if running your own business isn’t enough of a challenge, navigating the world of raising capital can be next level. To help make the process a little smoother for you, today we’re sharing with you what venture capitalists want you to know about raising capital.
Recently at Sales Director Central, we were fortunate enough to have Steve Torso, Founder of Wholesale Investor present to our team, and generously share his insights on raising capital. Here’s what we learned.
RAISING CAPITAL IS LIKE SALES AND MARKETING
You know you have an amazing product, and delivered value to your clients. But what’s in it for the person doing the investing? Steve Torso explains it perfectly in one phrase: “raising capital is literally a sales and marketing process.”
It’s obvious to anyone in sales and marketing that you can’t just roll up to a prospect and say, “this is my awesome widget, sign here, here and here, and you’ll be on your way.” And yet, so many founders do just that when they approach investors to get funding.
The investor wants to understand is the problem you solve rather than a list of features and benefits. The investor needs to see the big picture of what your product can do for your market in order to determine whether your product is worth investing in. Essentially, they need to see that your product is sellable as measured by the value the client gets from using your product.
It’s important to understand that making an investment is the same as making a major buying decision. Just like prospects, investors want to know that they’re making the right decision, and spending their money on something that’s going to bring them a return to their investment.
WHERE’S THE MONEY?
While some businesses are successful in raising capital, others have a more difficult time and wonder if there’s much money being handed out right now by venture capitalists (VC). The first thing to look at is, what’s happening in your sector. If there’s businesses doing well in your sector that are raising capital and doing well, that’s a great sign for you.
But how about something you’ve got more control over than what’s happening in your industry? Steve Torso explains it clearly “if you can show the VC metrics that you have strong growth potential, you’ll be raising your capital a lot faster than someone who can only show for moderate growth.”
The lesson in both scenarios above is, there’s money if you can prove the investor will see an excellent return by investing with you. Now stay with us here, because we’ll cover more about what you can do to increase your odds, by the end of this post.
HOW LONG DOES IT TAKE TO RAISE CAPITAL?
Most people estimate that raising capital will take 2 to 3 months, whereas in reality it can take anywhere between 6 to 18 months to get the money you need for your business.
Understanding that this isn’t a ‘one meeting’ process, will help you prepare and be in the right frame of mind for the processes. Raising capital isn’t a matter of doing the “one thing” that’s going to bring the money in. Instead, it takes multiple touchpoints with an investor to help them feel confident about investing with you. Taking action every day adds up to getting the results you want. Steve Torso summarises this with “Always be raising - you want to be having regular conversations to raise money.”
Now how about some more practical advice for when you’re meeting with the investor. You want to make sure you’re prepared for your meeting. You don’t want to go into a meeting with an investor ready to wing it, thinking that because this is your baby you can talk about it at length. In fact, you can set yourself apart from other founders by being mindful of the investor’s time and the information they want to hear. Steve Torso recommends having an agenda and a script to follow, making sure you highlight all the important points (like value), while keeping yourself on track.
Remember to give the VC an opportunity to share their thoughts about your market, this not only gives you valuable intel, but it can also help you sell your business by understanding what the VC is looking for. Of course you also want to leave time at the end of the meeting for the VC to ask you any questions that haven’t already been covered.
GETTING THROUGH THE RAISING CAPITAL PERIOD
Now you’ve got some great intel on raising capital, but let’s back up for a moment on that time period. Six to 18 months is definitely an investment in time. And for many businesses this period can be excruciatingly long when you consider the time that it takes away from the founder running their core business.
To help you not only get through raising capital, but also come out of it in an even better position than you started, we recommend that you zero in on what’s important in terms of revenue growth during that period. Yes, it’s time to focus on sales.
Remember, your best investor is your customer. Customers have invested their money in with you and thereby have backed your product.
Creating a strong customer base while you’re raising capital will also make you more attractive to investors. As a testament to this approach, entrepreneur and angel investor Jason Calacanis, recently advised other investors doing due diligence, saying “are there actually customers using the product.”
This is a symbiotic approach - the customer invests in your business, and the investors check to see who else has invested in your business. Whether it’s another investor handing over capital, or an investment in belief in your product through a purchase by a customer, that’s solid proof that there’s interest in your business.
Of course, if you really want to secure the interest of your investors, you can take your revenue growth plan a step further. One way to do this is by having methodologies and foundations in place for your sales team (or even future sales team if you haven’t hired as yet). This shows your potential investor that you’ve not only thought about sales but also put systems in place to sustain and de-risk your business, and their investment.
Sales Director Central helps businesses double their revenue through excellence in sales leadership. Connect with Sales Director Central here to find out more about creating and managing a high performance sales team for your business.
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