Key success factors for entrepreneurs seeking venture capital

Are you an entrepreneur seeking capital for your company? During global entrepreneurship week (GEW) in November, LaunchCapital Venture Partner Heather Onstott, Launchpad Venture Group Angel Investor Jessica McLear and 88 Acres Co-founder Rob Dalton discussed challenges and best practices associated with raising capital. The conversation took place at the “Venture Capital/ Private Equity Panel” at Babson College.
These were the big takeaways about pitching VCs and angel investors:
* Warm introductions are best. Far too many pitches roll through an investor’s office each year for him to look at each and every application. That is why “warm introductions” are the best way to get in front of an investor. Mentors from accelerator programs or former entrepreneurs whom the investor knows are ideal, but really anyone that carries credibility with the investor warrants a warm introduction.
* People matter. McLear described the importance of team members best in her investment philosophy: “I invest in the jockey; the horse needs to finish the race, but I really invest in the people.” Yes, the product matters, but the people matter more. Investors are taking financial risks, and they want to know that the entrepreneur and team members are capable and up for the challenge at hand.
* Keep your pitch concise. The investor needs to know what the company does within the first minute of the pitch. The biggest pitfall an entrepreneur falls into is a 20-minute pitch that fails to address this basic question of purpose.
* Determine what you want from the investor. Every investor and investment is unique. The amount of capital an investor takes from companies varies, as does the level of involvement the investor has with the entrepreneur. Onstott explained that she hasn't seen a VC take less than 20 percent or more than 40 percent equity of a company, explaining, “We want you to have something to work for." When it comes to the level of involvement, some investors sit on the boards and have a real hand in the business, while others are there just to provide the capital.
* Show your knowledge and be passionate. Investors want to feel the entrepreneur’s passion and hear his knowledge. He should be articulate about the business model, passionate about the business and understand the market in order for investors to make the leap of faith.
What other best practices and pitfalls would you share with entrepreneurs seeking capital? Let us know in the comments.
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