Getting funding for your brilliant start-up idea is no piece of cake. It’s easy to drown in the sea of fresh entrepreneurs flooding the desks and inboxes of investors. Each venture capitalist receives thousands of cold emails, hundreds of unsolicited pitch decks and a handful of out-of-the-blue pitches in the washroom. Average VC meets approximately 500 entrepreneurs a year, and that is – to say the least, a lot. Getting picked from the crowd may initially seem like an arduous task.
Fortunately, it’s not all magic – there is some science to it too. VCs develop effective pattern recognition that allows them to quickly brush off start-ups with no immediate chance of becoming successful. That means 95% of start-ups are disqualified in a matter of minutes.
As an entrepreneur trying to raise funding, you aim to avoid being filtered out too soon. You wanna stick to the game and reach that top 30 of companies a VC *actually* considers investing in each year. But we don’t want to pull the wool over your eyes – it is hard to complete this goal without proper experience and a staff of professionals ready to assist you. Exactly this is what the Start-Up Kit is designed for.
Without further ado, let’s look closer at the filtration patterns and see what you can do about them to break the DaVinci code.
FIRST: the investment thesis
The investment thesis is a reasoned argument for a particular investment strategy, supported by adequate research and analysis. Every VC has one, and even though investment thesis differs from person to person, all of them incorporate the following elements:
► Type of company (e.g. B2B, B2C)
► Stage of the company’s development (e.g. idea, seed, growth, etc.)
► Target market/industry
► Company location
► Founder demographics
So, the first step is – doing your research! Hugely important, yet the most forgotten. If your start-up doesn’t match VC’s investment thesis, don’t bother reaching out to them. There are only so many start-ups they can meet for in-person pitches, so why would you waste their (and your) time?
Secondly, once you figure out that your company may fit a VC’s investment thesis, a VC themselves needs to realise that too. It means you need to introduce your idea as clearly and transparently as possible. That is when Start-Up Kit enters the scene. Its assets such as the Product Vision Statement or MPV definition will be a holy grail when approaching the investors. MPV definition, for example, is a document that gives you, and investors the same vision of the minimum viable product that has to be developed, funded and launched.
SECOND: Business-focused vs product-focused
Investors love when entrepreneurs are business-focused rather than product-focused. Why is that? Because they don’t invest in products. They invest in businesses. In businesses that generate returns to their dollars, to be precise. So during your first in-person pitch, remember not to focus ONLY on your product — its functionalities, features, the way it was built, and how you plan to develop it in the future. Focus on the growth, the revenue, the profits.
Does this mean you should neglect your product and only talk numbers and dollars? Of course not! Giving investors an understanding of how your product interacts with the customer and how it brings value to the market is a crucial part of the whole business-focused approach.
In the modern world, the best way to introduce a VC to your product is with a Clickable Prototype – one of the assets in the Start-Up Kit. A Clickable Prototype allows them to experience your product first-hand, and give a better understanding of how the business idea would work. Which automatically improves your odds of getting the funding.
THIRD: A replicable customer acquisition model
Being a business-focused entrepreneur also means pitching your company with customer acquisition models that can be evaluated for its growth potential. Customer acquisition models vary, yet all of them have the same goal: identifying the best potential leads and setting up strategies to convert them into active customers.
Those customer acquisition models are either predictably scalable with additional capital or not – simple as that. We talk about a predictably scalable strategy when a company can show that every X amount spent will generate Y revenues. Predictably scalable customer acquisition strategies are, for example, paid advertising, cold emailing, content marketing, etc. Strategies that aren’t predictably scalable are e.g.: press/media or virality.
A predictably scalable company is an investable company. No one wants to make bets. That’s why bringing to investors a clear vision of the big picture and the long-term business plan is key.
Here comes the Start-Up Kit
The road to raising capital for your company will surely be a long one, but it’s important not to get discouraged. There are means to prevent being filtered out too early. And even though there are many on-the-spot decisions and unpredicted circumstances in this game, one thing you can be sure of is that a solid foundation always goes a long way. And what better way to build that, than with a bunch of informed and skilled professionals, that will assist you on the journey?