Pick Me! Pick Me! - Getting VC Money
Many of us have seen the animated movie Shrek starring the voice talents of Mike Myers, Cameron Diaz and Eddie Murphy. In the movie, Shrek, played by Myers goes on a mission to save...Many of us have seen the animated movie Shrek starring the voice talents of Mike Myers, Cameron Diaz and Eddie Murphy. In the movie, Shrek, played by Myers goes on a mission to save Princess Fiona and he asks for volunteers to come along. In the back of the crowd, Donkey, played by Murphy is bouncing up and down saying over and over Pick me, pick me! Shrek tries to ignore this leaping and jumping this pleading to be recognized. He is not convinced that Donkey is the right traveling partner on their long journey to success.
During the course of my career in helping raise funds for start-up companies, I have noticed that inexperienced entrepreneurs try to sell a Venture Capitalist (VC) instead of creating a vision around why a VC should invest in their company. In other words, the entrepreneur bounces up and down to get the attention desired without thinking through the entire process of successful business building. It is important to keep in mind that while you, as an entrepreneur, have eaten, breathed, and sacrificed around your vision and company ideas, a VC is finding out about it either by word of mouth or your summary that has found its way into their office.
It is essential to recognize that these same VCs typically have specific criteria to meet before they actually begin to consider an opportunity. As an example, many of us have purchased a home and understand all too well the details of the process. On the one hand, it involves making sure that the buyer can financially qualify for the loan, possess the down payment and has a proven track record of good credit. On the other hand, the assetthe househas to qualify in case the bank needs to foreclose. The process is one in which the lender takes into consideration numerous influencing factors and then makes a decision based upon the overall score or vision of the opportunity.
While it is true that VCs are in the business of investing money into an opportunity that will provide a return for that capital provided; they are also in the business of building a successful reputation and working with other VCs in order to fully fund that opportunity. In essence, they are investing their reputation as well as their funds and time. They want to know that if their name is associated with the opportunity, it will be successful.
Much like a bank, they have determined their own criteria that must be met in order to invest in you as an entrepreneur. And like a bank, many of them will score the opportunity before actually making a decision to pursue a due diligence course of action.
In order to get into a house, certain criteria must be met. You cant simply say, I want this house. Pick me to buy it! and talk your way into the home. Similarly, when preparing for VC funding, you cant go into a meeting with the idea that you can dazzle your way into receiving the funds. The Pick me! idea will not work without adequate preparation and focus on those details the VC considers to be key factors for investment.
Although there may be numerous criteria, with variations from VC to VC, I have found that there are five core issues for which all VCs want good answers. You need to have a solid answer to each one of these items, and be prepared to show that you have done your homework around them. The following list of musts may vary in their importance to a particular VC, but each one ranks high in the evaluation of and consideration for investment.
First: Is the market youre going after significant in size? Is it expanding quickly, or are expected projections for future growth significant? In a current market, or an opportunity to create a new one, you will want to be prepared to answer how your product or service offers potential for increased market share.
Second: How will your management team stack up when you receive the funding? Are there key management personnel in the company, or in its future, that have been there and done that before?
Third: Does the service or product offering you want to deliver to the market have a unique value proposition? Does it have a strong barrier to entry for known or future competitors? In other words, does your offering provide a sustainable competitive advantage?
Fourth: Are you realistic about what your company is worth? Is the value of your companyprice per share [that which you want to obtain from the VC] within reason? Are you expecting to receive investment funds and provide reasonable ownership of the company for the funds invested?
Fifth: Although it is not really measurable, VCs want to see the passion, the drive, the heart from you relative to what you are doing. Unlike Donkey, drawing attention to himself in an effort to be picked out of the crowd, you have to come to the table showing that you have what it takes to keep going when the hard times comeand they will come!
Besides what I have indicated, most VCs will publish on their Web site other criteria that they want you to consider. By doing your homeworkincluding visiting their Web site and calling companies in which they have already invested, you can learn what pieces need to be provided in addition to the above mentioned key items.
Remember, you are looking at taking a journey with this partner and they need to know that youre the right company to go the distance. They need to see your vision so that they are prepared to take you along on this journey of successful growth. They want to feel your passion for this opportunity. They must sense your willingness to make the necessary changes in order to succeed.
Be prepared, by first having answers to the above questions. Then, have your stuff together well enough that you can show them that your opportunity is the right one in which to invest! Create the vision and show them that you can execute on it. There is a large crowd out there, waiting for funds in order to execute on any number of plans.
If you want VCs to pick you, go in with a vision that can help them see for themselves. Bring them along on your entrepreneurial plan, and enjoy the journey!
R. Dean Taylor is the VP of Marketing and Channel for COMPLETExRM, a leading provider of Enterprise 2.0 CRM and co-developer of PlanPlus Online by FranklinCovey. Mr. Taylor has over 19 years of strategic and tactical marketing experience focusing on identifying and creating new channels, markets, product offerings, and establishing brand recognition worldwide. As a founding executive, he was responsible for launching Caldera's Linux product line and channel worldwide. Additionally, he was at the forefront of launching Linux into the worldwide marketplace and worked strategically with Oracle, IBM, SUN, HP and others to help bring their Linux products to the market and channel. He has held marketing and channel management roles for companies such as Novell, WordPerfect, IBM and Sanyo.