Approaching an investor, a guest post
This is the first in, hopefully many guest posts. The topic for this one is something that I found to be really hard - approaching an investor. What to say the first time, what answers to have... So I asked a dear friend, if she would be willing to write something about the process.
Nina Mazgan is working for META Group, supporting innovative knowledge-based start-ups and regional innovation development. She has experience in design and implementation of Regional Innovation strategies, business support and venture capital management. Her background is in Social sciences, International relations and Masters Degree in Economics.
A lot has already been written about the world of VCs, tips and tricks on how to approach a VC and about the future hot sectors to invest in. However at the end there are no black and white rules and moreover, how could we predict the future prospective sectors and most profitable ideas? If we would has such capability, we could all live happily, making a lot of profits without much effort …
However, as there are many aspects to consider when presenting in front of an investor, I will only highlight three of them that make you think also about other issues important to reflect before meeting a VC. First of all you have to keep in mind that in several cases investors are not experts in the fields your ideas come from, so you have to adjust your presentation to the level that is understandable to the general public but as well to the level that will attract the interest of the investor for further discussion. Further on:
Investigate the VC you are approaching – there are different VCs, investing in different sectors, different types of companies, different amounts of money. In order not to lose time and reputation with trying to convince an investor that doesn’t fit with your plans, it is worthy to understand these issues in advance.
Think big but stay realistic – While VCs are for sure looking for future Googles, Facebooks or Twitters they don't want to hear unrealistic pitches. It is important that you show your high ambitions, motivation, passion ... but be realistic and present your real opportunity and advantage against your competitors.
Leverage on your potential – VCs are usually looking for the market potential and high growth probability of the business, while the technical specifics and technology details come after and are never the first topic to be discussed. It is believed that you are or have experts that will ensure the viability of the technology, what is important first are the answers to the further questions and it is of crucial importance that you have straight and clear answers when approaching a VC with your first interaction:
i) Is the team of sufficient breadth, balance and quality to make its ideas happen?; ii) What roles will the team members play in the venture?; iii) Are the team members fully dedicated to the venture and their roles in the group?; iv) Will the ego of the founder(s) get in the way of success?; v) Is the team focused on its target market?; vi) How long will it take from the current stage of development to bring this to market?; vii) Can this venture achieve a leadership position in its market?; viii) What is the business model?; ix) Is the business defensible from competitors?; x) Is the business opportunity as presented both highly attractive and clearly realistic?; xi) What is the amount of up-front capital investment required?; xii) Does the team have a clear plan for spending the investment money it receives?; xiii) What is the expected time and amount of pay-off to investors?; xiv) Why is this business going to be around and a real world winner in 5 years?
But, at the end, to give you a demonstration what this all means and what VCs are looking for, you can find an answer in the following joke and I hope this will help you to understand what VC is all about ...
A Venture Capitalist and a Researcher were walking through the woods when a frog called out to them and said: "Help me! I am a Nobel Prize winner who, through an evil witch's curse, has been transformed into a frog. If one of you will kiss me, I'll be returned to my former state!“ The VC took out his wallet, grabbed the frog, and stuffed it inside his bag. The Researcher, aghast, screamed, "Didn't you hear him? If you kiss him, he'll turn into a famous scientist!" The VC replied, "Sure, but these days a talking frog is worth more than a Nobel Prize winner!" Related articles