Angels and vultures: how to get venture capital funding
Posted by Pierre de la Fortune on May 22, 2015 @ 12:01 a.m.
Written by David Wilson
Cue a seven-month dog-and-pony show in front of a dozen investors, who coo encouragingly, but reject you. Damn! Devastated, you wonder how anyone raises venture capital from those stingy vulture capitalists.
According to analyst Tom McKaskill, a doctor of business, the key is to court rich private "angel" investors, who fund one in five entrepreneurs. Angels are inclined to shower blessings on operators who may not have the "A-team" behind them but can prove "high growth potential".
That means a compelling market need for your product or service. That means a focused niche, a keen competitive edge and clear distribution channels, Dr McKaskill says.
Boost your chances by only pitching for a modest sum - less than half a million dollars, he adds. Also, you need "right-place-right-time" sheer luck, especially now because the funding scene is "in disarray".
"There's lots of good ventures running around looking for scarce capital," Dr McKaskill says. "So even a very good venture at the moment will really be pushing uphill."
Blame the rocky international economy. Dr McKaskill highlights the plight of US-based venture capital seekers who make the schlep to Australia.
"That really tells you something," he says, mentioning Silicon Valley hotshots who attend angel sessions in Melbourne because their base has dried up. "When Silicon Valley closes shop," he says, "the ripples are felt around the world." Still, in his view, a top-tier venture will always win funding.
The president of the investment consultancy Halifax Finance, Lana Larder, echoes him, saying: "good ideas backed by good teams and good plans can win over investors".
The appeal of your product or service becomes hard to resist, she adds, when you show that it reduces "pain". So, your venture should address everyday headaches that bug people - everything from computer freezes to balancing the budget.
According to Larder, people will pay you good money to make such aggravations go away. Prove you can.
And never deny that you have competitors. "No matter what," Larder says, "you have competitors — maybe not a direct competitor, but at least a substitute."
If you claim otherwise, investors may deduce you are ignorant. Treat your audition for a cash injection as an opportunity to showcase your edge over competitors.
Keep your spiel simple, advises Larder.
Minimise scientific jargon and technical detail because investors only care about the key business angles. Two more to address are whether you can protect your product or service - through patents, say - and whether you can pursue development "at a reasonable cost".
Sabrina Horn, CEO of Horn Group, a communications agency that represents "multiple" VC firms and helps "dozens" of companies get funding, accents the economic angle. "Understand that VCs are financial people," Horn says.
"Everything you show them has to have a financial upside: be it your technology, the strength of your team, your market opportunity," she adds. Prove you are profitable and merit being bankrolled.
When you fail to persuade your potential sponsors to pay up, stick at it. With each pitch, other analysts say, you improve.
So, to echo serial entrepreneur Wil Schroter, it may be best to pitch everyone, all the time. That way you can gauge how effective your pitch is and if it even makes sense.
For more info please visit: http://www.theage.com.au/small-business/entrepreneur/angels-and-vultures-how-to-get-venture-capital-funding-20100701-zpxd.html
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