Home Experts Darren Gowling 10 tips to raising money from venture capitalists

10 tips to raising money from venture capitalists

Posted by Darren Gowling
Darren Gowling
Darren is a recognised lead investor in a diverse range of deals from the Proof
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on Saturday, 14 April 2012 in Finance for Innovation

My name is Darren Gowling and I’m delighted to be invited by Innovation-Nations to share some of my thoughts and experiences with you. I thought I would use my first posts as an opportunity to reflect on what I think are the key elements to be aware of when considering raising Equity investment.

As an investor I am often asked what is the process for raising investment, what key information should I provide to them, what questions is an investor likely to ask, so I thought I would share with you over the coming weeks some thoughts  that will build into an investment aide memoir to prepare you for the task ahead covering the following:

  • 10 tips to raising money from venture capitalists
  • 10 Questions that VCs will ask and what they mean
  • The Adoption and Diffusion of Innovation
  • How a VC will value a start-up business
  • A typical VC's internal investment process - what happens back at the office
  • The due diligence process
  • The term sheet
  • The legal process - key points
  • Post investment relationship with your investor

 

This post will highlight more than anything some of the terminology you can expect to be confronted with when you decide to seek outside investment into your business. Some of this terminology I shall cover in more detail in future posts. So my first post is:

10 tips to raising money from venture capitalists

1. Target the right investor and do your research – there is no point taking a start-up business plan to a mid-market buy-out house. Use the right resources to target 10 to 15 relevant investors who have made recent investments at the stage your business is currently operating.

 

2. Seek out warm introductions from your network. VCs are much more likely to respond to a warm introduction from a trusted source rather than a “cold” enquiry.

 

3. Do not try and hit every investor in the same geographical market – VCs talk to each other and businesses that are seen to be “doing the rounds” are viewed with caution, otherwise someone else would have invested already. It is true that different regions have a different appetite to risk and scale of investment. For example, the US is much more likely to invest in a large start-up funding round than mainland Europe which in turn is more likely to do so than the UK.

 

4. Do not get hung up on the non-disclosure agreement. Many VCs will not sign NDAs as they see so many propositions. However, some UK investors will be prepared to sign the BVCA standard NDA so it’s worth asking.

 

5. Teaser – 2 page summaries – documents are useful to have but some investors will want to see the full plan straightaway to keep the number of interactions to a minimum before agreeing to an initial meeting. Make sure the full plan is reasonably concise and that the funding requirement and potentials sources of funding are clearly articulated. It is amazing how many plans do not actually communicate what the business is seeking in terms of investment.

 

6. If your plan is rejected, do not threaten to call the press, your MP, the Today program, etc. This will not bother the investor at all and will label you as a crank and threaten your ability to raise funds elsewhere – just because your plan is not right for one investor does not mean that it won’t be right for another. Instead, ask for constructive feedback and who else the investor might recommend.

 

7. Initial meeting – plan on an hour and that the VC will not have read your plan entirely. Comments such as – “…really great plan, very interesting, could you please put a bit of flesh on the bones…” are a dead giveaway. They will have focused on product, size of and routes to market, funding requirement, people and time to cash breakeven. Make these areas key in your presentation.

 

8. Term sheet – this does not mean that the investor will invest but indicates they are serious and prepared to commit some time to the process. Do not treat the valuation contained in the term sheet as set in stone – it is the beginning of the investment process. Indeed, most VCs will be disappointed if you don’t seek to negotiate.

 

9. Due diligence – often lengthy but it is important to get a structure and timetable for the process before commencement, including any third party costs and who will pick them up if the deal does not progress. Do not underestimate the time this will require of management and potential impact on day to day operations within the business.

 

10. Completion – now the hard work really begins! Once you have the investment the business needs to move forward, make sure you extract maximum value from your investors in terms of strategic input and their networks. They will expect regular and detailed communication from you so get something other than their cash in return.

 

Check back next week when I shall cover 10 Questions that VCs will ask and what they mean.

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