Investors at the Early Stage East Club Pitch Philly 2011 conference shared with early stage companies gathered to pitch at the event how to attract investment from venture capital firms and angel investors assembled at the event. First and foremost, understand what venture capital investment means, do your homework, be disciplined and don’t give your business away.
Consider alternatives to venture capital. Most companies need business capital but that needn’t be venture capital. For Pennsylvania-based companies, Ben Franklin Technology Partners is a tremendous source of investment, said Nate Lentz of Osage Partners. “As a technology partner, you are creative and innovative and part of that is pursuing capital.” If you are in a cash crunch, look to friends and family first, Joe Rubin of FundingPost advised. Use credit cards. Try to raise a bit more money this way and focus on milestones that can make a better argument for investment.
Know what venture capital is and what it isn’t. An entrepreneur who wants to build a company into a legacy should not be looking for venture capital investment. A venture capitalist wants to get money out of a business and expects the entrepreneur to feel the same way, Lentz said.
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How do you spend money in your business? “I want to see your financial plan. I really care about how you spend capital and think about deploying capital in a 12-24 month period,” Lentz said.
Do you hear wedding bells? “You have to be ready for a relationship that could last for several years. You have a partner that cares about your performance and the outcome of the business,” said Lentz. Consider which venture capital funds are most closely aligned with your business. Your partners are in business with you. If you are used to running your business and going your own way, that’s not someone who should be looking for venture capital investment. “This is a personality-driven business; make sure your personalities fit together,” said Karen Griffith Gryga of Mid-Atlantic Angel Group.
Do your homework. “We wasted a lot of time pitching people and it was all for nought. Make sure they have money to invest,” Bill Kirk of Weather Trends said. Know who you are dealing with before you pitch to investors. Pitching may be part of it, but Lentz said: “We don’t just want to be pitched at. We want to have a conversation.” Also, you should know if the firm can continue to support you or is this their last investment for this fund, Rubin added.
Read the term sheet. Understand what the terms of investment are. Investment is done for the upside of a company and the term sheet is done for the downside. “Do not be shocked by what the terms look like,” warned Rubin. “It will not look good.”
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Be disciplined. Make sure your paperwork is in order, the panelists agreed. It is worth the investment of having it done correctly the first time than having to redo it later at a much greater expense. Go ahead and hire an accountant or finance brain — it will be worth the investment. Do not ramp up too fast. You shouldn’t take more than you need, and that’s not an easy decision. But if you have a good partner, they will give you more in another round of funding.
Be prepared to work harder for less investment. The challenging economy means that investors are investing less and are choosier about where they make their investments.
You can’t steal first base. If you are ready for investment, then show that you’re worth it. Show you have just reached a milestone or launched a new product.
