Looking for Funding? Consider These 3 Must-Know Tips for Startups.

Bridge the vast gulf between a 'cool product' and an 'investable company.'

learn more about David S. Rose

By David S. Rose

Opinions expressed by Entrepreneur contributors are their own.

VC 100

Think you're ready to pitch investors? Not so fast. Too many entrepreneurs rush to seek funding without having a strong handle on their own business or on investors' needs. Here is what to keep in mind.

1. Understand your business. It sounds obvious, but the majority of entrepreneurs who pitch venture capitalists have never thought through many of the major issues surrounding their companies. You should know everything about your business, product, customers and competition. You should know every metric regarding customer acquisition, conversion and retention. You should have a crystal clear understanding of your business model and your financials. And all of this should be at the tips of your fingers so you can instantly answer any questions you are asked about it.

2. Understand what investors are looking for, what they usually invest in, and why. There is a vast gulf between a 'cool product' and an 'investable company' and if you don't understand the difference, you will be doomed before you start. There are many good books on this subject, and you owe it to yourself to read at least one of them before you begin talking to angels. Good basic guides including Venture Deals by Brad Feld and Jason Mendelson, and my own Angel Investing. You should also spend some time reading the blogs from VCs such as Mark Suster, Fred Wilson, Jason M. Lemkin, and First Round Capital.

3. Understand that the first capital is going to come from you. I always advise entrepreneurs using the Gust platform and in my day-to-day interactions that they should never try to raise money from a VC until you they reached deep into their own pocket. The bare fact is that investors simply do not fund ideas. In an era of increasing technology and decreasing costs, they'll expect you will to bring them an operating company with at least some traction. Investors want to know that you believe in your own startup and the best way to demonstrate that is to show that you have personally put your own money where your mouth is.

Related: Top 10 Early-Stage Venture Capital Deals of 2014

David S. Rose

Angel Investor and Founder of Gust.com

As a serial entrepreneur, David S. Rose has founded half a dozen companies, including Gust, a global and social platform for the world of early stage investing. As one of the country's leading angel invetors, he has personally raised tens of millions of dollars of venture, strategic and institutional capital. David founded and chairs New York Angels, one of the largest and most active angel investment groups in the US. He has personally invested in over 70 early stage companies, and serves on the boards of directors of KoolSpan, Magnify Networks, Social Bomb, comiXology, and Pond5.

David is Managing Principal of Rose Tech Ventures, Chairman of Egret Capital Partners, and Track Chair for Finance, Entrepreneurship and Economics at Singularity University. 

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