Venture Capital For Dummies
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One thing to keep in mind is that venture capitalists (VCs) see deals all day long. It’s unlikely that your company’s warts are unique. They’ve seen it all. If you are brave, ask point blank what they think the weakest part of your company is. The answer may be very enlightening.

Use this information to overcome obstacles that may be slowing or undermining your ability to secure funding.

Experiencing personality limitations

You may think that a founder’s personality is something that is pretty fundamentally ingrained in a company. Personalities don’t change, and if the founder is still involved with the company, he’s pretty closely tied to investor relations. However, you’d be surprised how quickly investors can warm to new management and forget about the founder behind the curtain.

Raising money too early

If you’ve talked to a number of investors and none of them are interested enough to commit capital, you may be trying to raise money too early. Go back through your preparation checklist to determine whether you jumped off the starting block prematurely.

Look out for the symptoms of raising money too early:

  • Investors are very interested and enthusiastic at first, but then cool after they talk with you and ask you questions. In this case, VCs may invite you to call them back when you’ve met a series of milestones.

  • Angel investors who hide behind the notion of a lead investor. In this case, you may end up with a stack of business cards from angels who will be interested as soon as you secure the lead investor.

If you think you are raising money too early, not all is lost. Go back to building your company and start the fundraising campaign again later after you hit a few more milestones.

Pivoting frivolously

Pivoting means that you change something significant about the product, target market, or end user after you come to the conclusion that your business plan isn’t quite right. It’s quite a bit different from iteratively designing your product and making little changes along the way. Because it often entails rebranding of the product and maybe even the company, pivoting is not something to undertake lightly.

Companies can be open to pivoting at some point as the business develops, but pivots should be rare and based on a lot of evidence that the company needs to follow another path. Pivoting can be extremely expensive and can require a lot of time to do well.

Tread lightly if you plan to make a big change to your original product or target market. Although doing so may be necessary, do it in a very calculated way, not frivolously.

Being in too many markets

You may think that having a technology or product that can do lots of different things in lots of different markets is a great thing. However, having too many market possibilities for a platform technology or product is a death knell for many companies. Why? Because the team often finds it difficult to focus on customers in one industry.

When a technology can be applied to many industries, choosing which one you will pursue first can be hard.

Investors will get excited about different verticals, and you’ll feel drawn to follow the money instead of following your plan and, as a result, inadvertently compound the problem. Unfortunately, this desire to exploit all market opportunities simultaneously leads to founders spinning instead of focusing. After a few months of fundraising, the company can end up less focused and further away from success than it was when it started fundraising.

You must choose one market vertical to pursue first, even though doing so means you have to sacrifice access to all the other possibilities, markets, and customers for a time. As a start-up, you simply can’t pursue all opportunities simultaneously, so don’t try.

Your message to investors? You’ve got a lot of growth potential in many different verticals. You’re starting with this one because you’re confident you can be successful here, and you’ll begin pursuing the others in the future. Then you have to stick to it.

About This Article

This article is from the book:

About the book authors:

Nicole Gravagna, PhD, Director of Operations, and Peter K. Adams, MBA, Executive Director for the Rockies Venture Club, connect entrepreneurs with angel investors, venture capitalists, service professionals, and other business and funding resources.

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