While the pandemic has certainly had an impact on the startup space, speculations were off about one thing: venture capital. It didn’t dry up: Venture investors poured $150 billion into North American companies in 2020, up about 7% from 2019 levels. All was not rosy, however, as first-time financings comprised only a fraction of that funding and decreased at points during the year. In the third quarter, for example, only 23.7% of deals went to brand new startups, as opposed to 27.3% in the third quarter of 2019.
Part of this could be the result of the pitch. Most now occur online. Since most investors invest in people, not companies, digital presentations often make it difficult for that sparkling personality to come through. That pitch needs to be on point, with a clear and concise executive summary, a detailed business plan and a killer pitch deck that makes a compelling case to invest.
Though investing may have shifted in many ways and the futures of certain industry sectors are still in question, it isn’t impossible for a startup to make headway with venture capitalists. A positive cash flow does provide some leverage. The same can be said for incremental margin improvements, as it shows some signs of future profitability.
For startups in struggling industries, never underestimate the power of reinvention. With a plunge in ride-sharing, Uber has made a move to home delivery services. Restaurants all over the U.S. are now opening “ghost kitchens,” offering different menu items for takeout and delivery. Live entertainment venues are exploring augmented reality, while retailers are looking for new ways to personalize the digital shopping experience.
Making the case for startup investment
While we’ve been strongly supported by our VC backers during the pandemic, the same can’t be said for every startup. How you enter a partnership is where the difference comes in. Transparency on where business is working (and not working) is key. So is clarity on the vision, despite the current uncertainty.
This, naturally, leads to the question of how you find the right VC firms to partner with.
Use the following five strategies to find the perfect VC partner for your business:
Do your research
VC firms do much more than provide the funds necessary to get a startup off the ground. They can also offer strategic advice, operational expertise, market insights and a network of connections that just might help accelerate your idea into a viable venture.
But you’ll never know which VCs to target until you do your research. Focus on those firms most likely to share in your vision and with a record of investing in your market sector, stage of company or geography.
Go in warm
At VC firms, there’s no shortage of unsolicited emails touting investment opportunities — and most (if not all) will be ignored. To increase your chances of garnering attention, it’s always best to go in warm.
This isn’t to say “cold calls” will leave your coffers empty, but you’ll often come off as more reputable when the connection is made through a warm introduction. It’ll serve as an endorsement of sorts and vouches for your character.
Work your network like crazy. Start with your strongest relationships and go from there. Explain exactly why you’re seeking an introduction without making a pitch. This is a favor, so it should be phrased in that way. If it’s a no-go, move on to the next shared contact.
Flex those PR muscles
Good publicity around a new venture is never a bad thing. When used properly, the positive attention helps build credibility and could get your venture covered by a media outlet or two. Even a story in the local paper can reassure potential investors that your product or service is more than some flash in the pan.
Get the word out about your venture. Create content that tells your story, and consider what’s truly newsworthy about your business. Why should people care? What valuable insights could you share with potential readers? Remember to come with facts and figures and to discuss more than yourself.
Attend networking events
Connecting with VCs during trade events may fall under the category of “cold calling,” but it’s still a means of networking and establishing relationships that may pay off later down the line — namely with junior members of VC firms.
Start attending conferences, even virtual ones. Introduce yourself to analysts at your target VC firms. They may be junior members of the investment team, but they will often have the most time and interest in hearing about unsolicited investment opportunities.
If you’ve got materials on hand, pass them along. An executive summary is always a good thing to bring to any trade event. The same can be said for a cover letter and other marketing collateral. Just make sure the “pitch” will catch their attention.
Work up game plans for every occasion
If the thought of an unsolicited approach from a junior member at a VC firm leaves you tongue-tied, you better get to work on a game plan on how to develop that relationship to secure further meetings.
Understand that VCs plan investments well in advance — sometimes upwards of 24 months. Get to know the burn mechanics in your sector. What amount of capital will generate positive cash flow from your venture? How do you break out costs? You need those numbers and financial models at the ready should a request come in.
The startup space has never been easy, and preparation is still key. Get to know the VCs backing startups in your industry, leverage your network to make the right connections and get people talking about your business. It’s important to make the right choice in investors. They’ll be tied to your venture for a while, so it’s best to make sure they believe in what you’re doing.
Originally published May 24, 2021.