Advice from Julian Carter, Founding Partner and Managing Director of EC1 Capital (London VC Fund with 10+ exits to date)
I have met many entrepreneurs on my journey. It is an honour and a privilege to meet such talented people. Always, it’s a hard choice to choose which of the hundreds we will fund. There is an abundance of information on the web now about how to approach venture capital funds & venture capitalists and also what to say, there are general rules, and there are ones specific to the fund you are talking to. Do your research.
What VCs Care About
Most entrepreneurs seek the silver bullet. There is none. However, I will mention some things we look for. In an early stage start-up, there is very little ‘hard’ data to go on.
- Team. You will hear this everywhere. We back people first and foremost.
- Market size. You should be addressing a big market.
- Traction. What have you achieved so far, what does it tell you?
- Revenue Model. Time to break even.
- Ideally, you should be disruptive.
- Product. Innovative and defensible.
- Clear articulation of how you will acquire and retain customers.
- Know all your numbers.
- Enthusiasm. Something that cannot be faked.
- Honesty. Never ever lie or stretch the truth. You will be found out.
- Motivation. Why are you doing this, what have you sacrificed to do this and how long can you keep going for?
- Can you build things? Can you actively ‘do’.
For investors, it is as much about getting to know you and ‘de-risking’ you as it is about your startup.
Approaching and Pitching
It is crucial to carefully research any VC firm before approaching it for funds. You also want to make sure you’re at a pitchable stage of your business. VCs provide a support network and financial capital for early-stage businesses – typically high-risk companies but with scope for extensive growth. Investments are often made in high-technology companies specialising in pure technology or life sciences.
VC firms do not respond well to cold calling – you will need to appoint advisors to act as an intermediary and make introductions on your behalf and arrange for you to pitch for investment. And make sure you have done your homework first. A polished, detailed presentation document is crucial. Getting VC investment is by no means guaranteed – the vast majority of funding proposals put before venture capitalists are turned down.
Once you have secured the opportunity to pitch your business to VCs, this is your time to really shine. You may know exactly why your business is outstanding, but that doesn’t mean that VCs will, and there’s no reason to suggest that your business won’t seem very similar to a myriad of other companies unless you prove what makes it exceptional.
Demonstrate to investors your knowledge of your chosen market. Show them that you are familiar with your competitors and reveal how you can stand out from them to prove that you are serious about the future of your venture. To get VCs excited about the potential of your business, come armed with details of similar businesses in your market that have exited.
Alongside knowledge of your own company, it’s important to have a clear understanding of your potential investor. Show them that you are aware of how they work and what companies they have invested in. This will tell VCs that you have targeted them for a reason while taking the time to talk to portfolio companies will also give you the opportunity to find out how much value the investor can really add and what support you can expect going forward. When you get to the advanced negotiations, it is your time to ask the questions, so be prepared to challenge them on what they can bring to your business, beyond just the cash.
But it’s not all about facts and figures. Ultimately VCs will have to believe in you as a person, as they need to trust you to make good use of their money. Prove to them that you have a fantastic business plan, supported by key players in the field and a genuine passion for your company and you will start to see VCs paying attention.
Conclusion
If you have a solid business and traction, you have nothing to worry about, there is investment money out there, you’ll have to work hard to get it but so be it, that’s the job. Don’t be fake, be calm and have a conversation and remember the majority of investment deals get done casually over a coffee or a drink!
