Monet Capital - Selling Your Investors

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Selling Your Investors

Successfully navigating the perils of fund raising.

Qualify the audience

Prepare yourself for success by asking good qualifying questions. Most VC's have web sites that will help you identify their investment goals, portfolio of companies, individual partner backgrounds, stage and focus of investment, average investment amount, and other parameters. There are a wide variety of variables that may make a particular VC firm appropriate to your needs. Do not waste time with low probability prospects.

Work the leads

Venture capitalists are much less likely to invest in companies that do not come by way of someone they know. These can be Angel investors, corporate attorneys, accountants, or friends and family. Find a well-qualified attorney or accountant. Understand which firms cater to the startup industry and are therefore tied into professional investors. Direct mail as a form of lead generation will not work, neither will telesales. This is a relationship sell.

Build your pipeline

Raising a first round of venture capital investment will take a minimum of three months and may take as long as nine months, or more. It will require pitching a minimum of a dozen VC's. Approach this in waves, allowing for course correction and the benefit of a learning curve. Adjust the pitch according to feedback. Assume a very low closing ratio. Track the investor (prospect) through the various stages of your sales funnel. Here are some good milestones that measure increasing commitment by the investor:

Introduction and sending the business plan or executive summary - the first step.

First pitch - if you make it to this point you are doing better than most.

Due diligence - if prospective investors begin to make phone calls they are now qualified. This is a very good sign. Be sure to follow-up with your references to see what they were asking about and their perceived interest level. Were they positive or looking for reasons to pass? What were the issues raised? Plan to overcome these objections in future meetings. Second meeting - the timing for this will depend on the firm and the particular partner style.

Full partner pitch - this means you are now under serious consideration by the investor. This is the equivalent of the short list. Qualify the audience by quizzing your sponsor (partner) as to the particular hot button or issue still unresolved. Be sure to get feedback as to how the full partner meeting went.

Term sheet - the Promised Land. This may takes days or weeks after the full partner meeting and their decision to move forward. The process of negotiating a term sheet is best done with a qualified attorney.

Syndication - depending on the firm, the amount of financing, and other variables, there may be a process of finding a co-investor. This can be trivial or a whole other sales cycle. Given the potentially serious politics involved in deal syndicates, this is a variable that should be discussed during the qualifying phase (e.g. who do you do deals with? what is your attitude toward investment partners? etc.)

Closing - nontrivial. This is where you learn a lot about your prospective investor/partner. Subtle deal points not covered in the term sheet may perplex and disturb you. Be sure to have a good attorney and to remain focused on the ultimate goal: closing. This stage may take a month or more.

Solicit feedback

Well over half of the entrepreneurs that are invited to give a pitch (already a select minority) never call back. They neglect to follow-up or solicit feedback. This is a first test of your entrepreneurial skills. After all, raising money requires sales skills. You need to close the business and this means asking for feedback, and ultimately, for the money.

Create Urgency

What do investors want to see? Among the characteristics most valued are: Experienced management - a seasoned team may be the biggest variable in the fundraising process. Add a proven CEO. Market momentum - nothing works like real customers. Short of paying customers, prospect references work well. More is better. This will reduce due diligence time by VC's dramatically. Term sheets coming - if others are showing real interest, this may ignite the fence sitters. This is also a dangerous gambit if there is no real momentum.

Close, close, close

Raising money from investors is strategic selling at its highest form. It requires you to navigate the waters of multiple decision-makers, with mysterious or unknown decision-making processes. It puts you under extreme scrutiny by a variety of skilled analysts and spreadsheet jockeys. If you have identified the next big market, recruited a core team of proven professionals, built an interesting product or prototype, and battled the forces of inscrutable investors, success is sure to follow.

The best entrepreneurs know how to sell and to build confidence in themselves as executives. As in any sales process, stay focused and have several alternatives in the pipeline.

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