Tips for Entrepreneurs Who Must Brave the Venture-Capital Gauntlet Money-loaded VCs might seem intimidating, but armed with a few tips, entrepreneurs -- even those wrestling with financing for the first time -- can help level the playing field.
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Seeking out venture capital for your business is rarely easy -- especially if you're doing it for the first time. Entrepreneurs may be specialists in their niche, but attracting and weighing different funding offers requires an entirely new skill set and can prove overwhelming. It was for me.
After braving multiple financing rounds -- ranging in value from $1.9 million to $165 million -- I've gained some perspective on the venture capital (VC) landscape. With the benefit of hindsight, I'd like to share a few lessons with entrepreneurs testing the VC waters for the first time.
First, flip the script. Many entrepreneurs are intimidated by the prospect of meeting with investors. But VC firms aren't doing you a favor by meeting. Their whole purpose is to deploy capital -- in fact, they're losing money if they don't. Once you put aside the intimidation factor, it becomes much easier to make your pitch and rationally evaluate the offers that you receive.
This leads to my next point: Cast a wide net. Many promising startups set their sites exclusively on one or two big-name investors. While the brand equity is nice, the reality is that these firms don't necessarily offer anything above and beyond what you get elsewhere.
Rather than choosing a firm based on pedigree, choose one you actually have a connection with. Meet with a variety of investors, and don't try to get funded on your first meeting. Take time to build relationships. And do your homework. Dig into a representative cross-section of each firm's portfolio companies, not just the few they give you as references. Use LinkedIn to track down other founders to get the inside scoop. The Funded has user-generated reviews of thousands of investors and can also be a helpful starting point.
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Once you've settled on a firm, don't take the first offer on the table. This may seem obvious, but if you're starved for capital, it can be tempting to just sign on the dotted line. Above all, I'd suggest avoiding complex deal structures. The harder a deal is to decipher, the more likely you'll be left holding the bag a few years down the road.
Finally, keep your expectations in check. Lots of VCs will promise you the moon -- hands-on guidance, special insights, strategic help, etc. But once their investment is locked down, many turn their attention to the next big thing. If you go into a deal expecting just capital, you may be pleasantly surprised if you actually get something more.
Investors clearly have a strategic edge when it comes to negotiating deals -- it's all they do, after all. But armed with a few tips, entrepreneurs -- even those wrestling with financing for the first time -- can help level the playing field. In my case, I know that many late nights and lots of hand-wringing could have been avoided, if only I had known then what I know now.