13/03/2012

John Mihell on securing venture funding

John Mihell of Finance Wales looks at how you can maximise your chances of securing venture backing when VC houses reject many of the plans they recieve.

It is clearly a matter of trying to differientiate your opportunity and a deeper understanding of who you're pitching to could just give you the edge.

Treat the VC house as a customer

Your initial relationship with the VC house is one of customer and supplier. Initially, you’re trying to sell a potential investor shares in your company, but beyond that you’ll need to prove you can sell other things in the future - your company’s products, or perhaps even your company when the time is right. This is a great opportunity for you to demonstrate that you’re sales savvy and customer focused.

Exit strategy

It may seem odd to be thinking of your exit strategy at the start of a long-term investment, but for investors, this really is one of their principal concerns. Demonstrate that you have a clear idea of your exit strategy and be able to answer questions from the start. This will give you a strong advantage over companies with a less specific view:

  • How
  • To whom
  • When and why?

VCs will also be impressed if you can demonstrate that you understand what drives your potential market(s) as opposed to simply demonstrating how good your product is.

Investment is for the long term

Once you’ve secured investment, it’s likely to take you a while to achieve your goals and you’re going to spend a lot of time working with your VC backer(s). It’s important to build a positive working relationship that’s capable of withstanding the pressures growing businesses face.

Understand the decision-making process

Whilst they like to give the impression they relish risk taking, VC houses can often appear quite risk averse. They’re quite relaxed if they decline ‘backable’ opportunities that go on to be fantastic investments for others. Conversely, they’re less relaxed when one of their investments fails or doesn’t achieve its anticipated return. Understanding this can help you present / sell your opportunity effectively.

Once you’ve convinced them of the potential upside your opportunity offers them, it’s crucial you convince them that you know how to manage/mitigate the associated risk in delivering growth. “When you’re seeking funding, remembering the old adage ‘people buy from people’ could pay real dividends. VCs want to have a sensible, long-term relationship with you to ensure their investment is successful. Convincing them that they can work with you to achieve this may just give your opportunity the edge!

This article first appeared in Spinout UK's Quarterly Journal 3 (www.spinoutsuk.co.uk)