When you seek venture capital, there is a high probability that you will become accustomed to receiving “no” for an answer. Although you are convinced you are presenting an incredible product or service, skilled investors understand how to evaluate the market, determine your company’s worth and assess their prospects of getting a substantial enough return on investment (ROI) to make their financial contribution, and their risk, worthwhile.
You may have plans to positively alter the course of people’s daily experience, improve farming efforts in developing countries or rival an existing startup with improvements that will blow them out of the water. However, there are many things a venture capitalist (VC) will want to know before investing in your company.
Venture Capitalist concerns with new investments
Continuously asked for money, VCs must regularly make choices about projects with which they want to become involved. More often than not, requests are sidelined for one reason or another. However, a denial of your proposal does not necessarily mean your concept lacks ingenuity or is of no interest.
Although those may factor into a decision, a VC may opt out for any variety of reasons, some which might include:
- Lack of preparation. Seeking funding prior to developing a minimum viable product (MVP), without running a pilot program or if you lack strategic partnerships may indicate you have not gained enough early traction. How can you show investors you have put in the dedicated effort to prove your scalability?
- Underestimating risks. Part of becoming successful is understanding the risks you are taking. Being transparent about your potential risks can show investors you have researched the market and are aware of applicable regulations. Furthermore, you can inform prospective VCs about the efforts you have made to reduce or eliminate things which could jeopardize their ROI.
- Limited intellectual property (IP). Some VCs are interested in a wide range of protected IP. At the same time, they will want to make sure you maintain the rights to your patents, domain names, trademarks and copyrights. Anyone investing money in your company will want to know how you developed your IP and whether those working with you have assigned their IP to the company.
Before approaching VCs about your needs, do your research. Then, when the opportunity arises, come to the negotiating table fully prepared not only to answer questions but also learn about your opportunities for improvement. Thorough preparation and teachability can increase your chances of establishing a working relationship which could benefit all involved.