Young entrepreneurs looking to take their startup to the next level are often faced with the tall task of landing outside funding. But what the best route is for finding capital and how to approach investors can sometimes be a bit of mystery.
These were some of the questions investors addressed during Tuesday's TechCrunch Disrupt NY 2013 panel discussion on the subject called "Lots of Venture, but What is Gained?" Aaref Hilaly of Sequoia Capital, David Tisch of seed capital firm BoxGroup and TechStars, Mike Abbott of Kleiner Perkins Caufield & Byers and Naval Ravikant, from startup platform AngelList, all participated in the wide-ranging chat.
Here are a few of their top takeaways for young entrepreneurs:
1. Decide between pitching partners and firms.
If you landed the gaze of a prominent VC who wants to take you under his wing, good for you but you'll still have to win over an entire fund. Often, individual partners of firms can act as a mentor to entrepreneurs, as they may come from a similar background and are able to empathize with startup struggles. And while seeking out these individuals can lead to your startup getting noticed, don't expect a partner to have the final say as to whether you get funding. Everyone at the firm has to get on board, as investors believe a collaborative environment will provide a collective embrace and help the company grow, says Sequoia's Hilaly.
2. Make sure your VC not only provides capital but also value.
As more angel investors emerge, along with alternatives like AngelList and crowdfunding, venture-capital firms need to step up their game and have a plan as to why entrepreneurs should choose them. "Regardless if you raise money form Sequoia or KPCB, the dollar amount is the same. It's how do we give companies a unique advantage in this competitive landscape on a global scale," Abott says.
While the influx of funding can provide more competition for VCs, that can be advantageous for young entrepreneurs. When seeking out VCs, make sure they have the same vision as you. Also, ensure that they're willing to invest money and time into your startup, as well as provide adequate resources to get your company off the ground.
3. Don't focus on fads.
Don’t spend your nights mulling over what will be the next big trend, as it can result in entrepreneurs not sticking with the startup through the ups and downs, notes Ravikant. "There is less stopping an entrepreneur from starting a company, so the entrepreneur needs to be more disciplined," says Hilaly. "Don't start a company just because you can." Make sure your startup is an extension of yourself and your passions. And while entrepreneurs may have their own ideas of what makes them tick, companies with a strong focus on technology integration perks Ravikant's interest and Tisch loves innovations that make consumers' lives easier.
4. Not every company should seek VC funding.
Getting backed by a venture fund not only provides cash but also validation in a startup's concept, but this route isn't for every company. Lifestyle-technology businesses with an upside of only $10 to $50 million may not be a good fit for VCs expecting a much higher valuation, according to Tisch. While he acknowledges an investor class has yet to emerge to fund these kind of startups, he does believe crowdfunding can be a powerful tool.
Check out the discussion in its entirety in the video below
What's your best advice for working with venture capitalists? Let us know in your comments below.