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Inside guide to vc funding
Peter Jones provides advice for startups seeking venture capital (VC) funding. He emphasizes that founders should be brutally honest about whether their idea has the potential to become a huge global market. Successful VC-backed companies typically need to generate over $1 billion in exits. Founders also need ambition to create significant personal wealth, as lifestyle businesses are not suitable for VC funding. Developing a strong founding team with prior startup success improves the odds of raising money. Networking is key to getting the first meeting with a VC, and founders should qualify whether a particular VC is a good fit before pitching their idea.
Inside guide to vc funding
- 1. Inside Guide to VC Funding Peter Jones General Partner But a techie really! CompSci, Cambridge; UNIX/C Programmer; wrote an RDBMS from scratch! (Why?); Founder/CTO of Metrica; CTO of SignalSoO; Strategy Director of AcQx; plus others that didn’t work so well!
- 2. You have an advantage – VCs generally like techies!
- 3. Be brutally honest with yourself – is this really a big opportunity? Is it a global market? Is the potenQal market size measured in $1bns? Is it growing rapidly? Inside Track VC Blockbuster Economics... £90m fund with goal of 4x; Return of £360m; 25 companies – 85% fail or low return, 15% succeed; Bulk of return from 4 companies 25% on exit, so need £1.4bn of exits; PotenQal £360m exit per company => Market must be big!
- 4. Be brutally honest with yourself – do you have the ambiQon and is this the right Qme for you to do a startup? Is your goal to create a big business and serious personal wealth? You can’t create a lifestyle business with VC money There are a lot easier ways to make a £1m! Even with the best product, huge market, compelling business case, it’s a massive task... ... But can be incredibly intellectually, emoQonally and financially rewarding.
- 5. Be brutally honest with yourself – stress test your idea really hard Can you express the core of the proposiQon simply and concisely? Is it solving a real problem where there is real pain? Is it a must-‐have or just discreQonary for your users? Are you really solving the problem and adding value?
- 6. StaQsQcally the chances of raising VC money are low... Inside Track Typical Deal Flow Metrics In the current climate it is probably harder! 700 Plans/Decks 100+ MeeQngs You should assume that it will probably take six months to a year (or longer) 10 Serious 4 Deals But you can improve your odds by working smart ...
- 7. Improving the odds – start building the team The best thing you can do is build a kick-‐ass team around you Ideally a balance of skills – technical, markeQng, bizdev Ideally a team of peers – with equally aligned moQvaQons Prior success (i.e. Making money for investors or yourself!) in a startup probably gets you through the first filter in one go! Inside Track Bet on the horse or the jockey? Almost all VCs would choose the jockey – despite Harvard research!
- 8. Improving the odds – genng the first meeQng DON’T PRESS THIS! (cat >/dev/null) SHOTGUN IS WEAPON OF LAST RESORT Inside Track -‐ Meet porqolio companies VCs depend on their networks -‐ Go to events like this A warm introducQon from a trusted contact will probably get you a meeQng. -‐ Find Angel investors “If X can’t find one person in my network and -‐ Consider an advisor convince them why would I see them...”
- 9. Improving the odds – qualify the VC Always ask, “Am I wasWng my Wme?” 1. Do they have any money?! 2. Do they invest in my stage of company? 3. Do they have a specific interest in my sector? 4. Have they invested in Source: Ben Holmes, Index, Slideshare.net compeQQve businesses? 5. Can I get to the right person? Inside Track Roles inside a typical VC – who you have to convince Associates – act as gatekeepers, source and qualify deals Partners – champion the deal, make the investment case, manage the investment subsequently, you need to like him/her Investment CommiZee/Partnership – formally agree the investment
- 10. Improving the odds – developing the pitch/ deck -‐ You don’t need a 200 page business plan -‐ A slide deck plus demo/ video is ideal -‐ Keep it simple and concise -‐ Goal of meeQng #1 is to get meeQng #2 Source: Dave McClure “How to pitch a VC”, Slideshare.net
- 11. Secret sauce – the importance of technology • Technology is one of the key vectors of disrupQve innovaQon • Today comes in lots of shapes and sizes – Scalability of a social media or web service – UX of a mobile app – Deep tech of a semanQc search applicaQon • Pproprietary is good! – At least for the secret sauce – Standards, open source for everything else • VCs like technology because of the defensibility from compeQQon it brings – Its also something to sell if things don’t go too well!
- 12. Making progress on the business – execuQon is everything! “A good idea is just a mulQplier on the value of good execuQon” -‐ The importance of numbers -‐ Define key metrics (traffic, retenQon, conversion) -‐ Track and show progress Idea ExecuWon -‐ The importance of evidence -‐ Find evidence for your market Poor = -‐1 Poor = $0 size OK = 1 OK = $1m -‐ Find evidence of customers Good = 5 Good = $10m desire to buy (ideally sell it!) Great = 10 Great = $100m -‐ Validity of business model -‐ Develop proof points -‐ What do you need to show to get to the next stage -‐ Tie proof points to funding and business plan
- 13. So am I wasQng my Qme? -‐ Recognising a “slow no” is hard! -‐ Investors are always “interested” – only valuable if they are doing work -‐ Don’t waste Qme trying to persuade someone who said “no” (instead thank them – see #1 above) -‐ Don’t take it personally! -‐ Don’t drink your own kool aid! Constantly re-‐assess your proposiWon in light of criWcism You can get there! Good teams with good ideas and execuQon will get funded