So you've built the next tech unicorn. The platform is solid, your product fits the market and all you need now is scale. However, someone needs to help pay for all the free sugary drinks, table tennis tables and office space that the army of growth hackers, developers and sales people are going to need.
You need someone with capital, whose job it is to invest in interesting high-growth businesses. You need a venture capitalist.
So how do you get venture funding right? There are lots of myths, some pitfalls and many benefits that need to be addressed.
The first question that entrepreneurs should ask themselves at the very start of this process is whether you need funding in the first place. I have known businesses take money solely as a way of increasing the perceived value of their company. For me, this is a needless vanity play, and only results in the founders dumping equity to boost an ethereal valuation.
Instead, ask yourself exactly how you are going to allocate the funding you receive, plan ahead and figure out how much you need to hit very specific business objectives, with the ultimate goal of getting to a company waypoint. This could either be an exit, or simply the next step in your growth curve.
Next, do some research within your networks and elsewhere to find a few funds that fit your company culture and operate in your sector. An organisation that knows your space, the issues you are trying to address and comes with a pre-built network is vital. This doesn’t just make for a more joined up approach on business planning, but VCs often come loaded with top quality contacts that can be hugely valuable to sales, marketing and other proactive business operations. If they have successfully backed a number of other companies in your sector, then this network will have had time to develop.
Importantly, take your senior team in to talk with VCs when you meet them. This is not a one-person show, it’s a culture and personality fit as much as anything. It’s vital that the chemistry is right, because it can cause long-term problems at the board table if not. Close collaboration is so important and regular updates will be expected, all of which must be done from a position of trust and mutual respect.
Next, have a watertight intellectual property strategy. Before you enter negotiations for a round of funding, ensure you know where the value lies in your company’s IP and make sure you have the necessary legal protections in place. Capital can only be laid against something unique which cannot be easily replicated, and the last thing you want is an IP lawyer questioning your business model.
Finally, approach the process with the right mindset. Some entrepreneurs unfairly paint venture capitalists as bogeymen, believing them to be opportunistic moneymen keen to make a quick buck. In my experience, this is not the case. Many are as enthusiastic about the businesses they invest in as the entrepreneurs themselves. This is something that can only be developed by building solid foundations and creating the right relationship from the outset.