Let Mike Bowman be the one to break it to you. Your company? It’s probably not something a venture capital firm would want to invest in. But that doesn’t mean you shouldn’t build it.
“There are so many other ways to capitalize your business,” said Bowman, the associate director of economic innovation and partnerships at the University of Delaware and longtime president of the Delaware Technology Park. He’s a founder of Leading Edge Ventures, a new $10 million seed-stage investment fund focused on mid-Atlantic tech and medical device companies.
First, make sure you understand professional investors, like venture capitalists and angel funders are only one of your options. Consider a few others:
Let’s say you do think your company is something a venture capitalist might be interested in. That means you must believe your idea has a reasonable plan for high-speed and high-growth. “Investors need to see an investment in you as moving the needle in their fund,” said Chris Fralic, a partner with First Round Capital.
There’s great risk in putting $250,000 in seed financing into an untested company, particularly led by an inexperienced founder. So many investors need to see companies that are projecting they could offer more than 10 times in return, with the expectation that some will fail and others will fall short and deliver a three to five times return.
Brock Weatherup has been on both sides of the equation. He founded a Philadelphia ecommerce company Pet360 that was acquired by PetSmart for more than $130 million, and became an angel investor. He places importance on both whether the market is big enough for size and scale required to make a return, as well as whether the product is solving a true pain point. A third consideration is the entrepreneur herself.
“Do I believe in the person who’s trying to do it? Because whatever business plan you’re going to present to me, it’s going to be wrong. And I know it’s going to be wrong and everyone knows it’s going to be wrong. But how are you going to react when you figure out it is wrong?” he said.
One way to temper that risk is to show something that is already working.
“Angels, VCs, banks, grants; all of them are going to want to see traction. All of them are going to want to see activity,” said Heron, of Michigan Funders. The activity within the business defines what mechanism are available to you, he said.
With all that said, if you want to pursue raising outside money, you’ll need to build a network.
Look at how Brooklyn-based video gifting startup Tribute.co raised its $1 million round full of New York tech scene notables: by attending private events and leveraging relationships. Get a warm introduction and offer value in return. “When you’re around a sphere of tech influencers, it’s a great place to start,” said Tribute.co founder Andrew Horn.
The point here is that there are clear processes and expectations when dealing with investors, so you need to familiarize yourself. Be honest. Be confident. Be great. If you can make someone else money, you’ll get offered capital, but you need to be sure that you want it.
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