Week 2: How to Approach a VC

Week 2: How to Approach a VC

“Understanding the Pre-Investment Process … Selecting a VC … Approaching a VC … The Entrepreneur’s View … The VC’s Perspective”
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Summaries

  • Week 2: How to Approach a VC > Understanding the Pre-Investment Process > Understanding the pre-Investment Process
  • Week 2: How to Approach a VC > Experts: 2.1 + 2.2 > 2.1 What a VC is Looking for and how to Approach Him/Her (1/2)
  • Week 2: How to Approach a VC > Experts: 2.1 + 2.2 > 2.1 What a VC is Looking for and how to Approach Him/Her (2/2)
  • .Week 2: How to Approach a VC > The Entrepreneur's View > The Entrepreneur's View

Week 2: How to Approach a VC > Understanding the Pre-Investment Process > Understanding the pre-Investment Process

  • What’s the reasoning? Well they have various reasons to do that Maybe the one and the best reason is that they are venture capitalists and it will remain venture capitalists.
  • The rough analysis phase might take you at least two weeks or up to two months depending on the VC, depending on the question how many VC’s you have in the process and how you are able to lead the whole process of getting VC money.
  • If a VC is still interested and you have to see that up to 90% of investment proposals fail at this stage and some failed before because if the VC is even not interested to see you as the management team for presentation then it really gets interesting.
  • Well a paper is worth nothing but it’s at least a good sign for you to get a letter-of-intent and he’s telling you “I intend to invest into your company please give me more information”.
  • He meets you several times and he looks in the business plan in very detail and he doesn’t due diligence of everything which is there.
  • If you have patent he does a patent due diligence and does a diligent diligence and a business diligence.
  • So at the very end he invests really time and money in order to look at your company really really closely.
  • That’s a real crucial question should give him gave me exclusivity and is going to pay for the diligence and so on so these are details which are worth thinking about if it if it gets to that stage.
  • This one is really worth looking deeply into that and it’s also worth going into the negotiations with the VC which can take some time which can take even longer time where you do the final negotiations about the deal about all contractual details and ideally at the very end both of you, the entrepreneur and the VC more than one VC is signing the contract, the investment contract.
  • These are four stages and what we’re going to do now is we look into the first two phases a little closer in order to try to understand how to really tackle a VC how to get the attention to get closer to a deal.

Week 2: How to Approach a VC > Experts: 2.1 + 2.2 > 2.1 What a VC is Looking for and how to Approach Him/Her (1/2)

  • What are your main criteria regarding potential partnerships? So when we are investing it depends on the stage of the company.
  • If you are an early stage company, obviously we’re looking for a technical team that they can caught and build the solution that their team is a good solution.
  • Meanwhile because of the good number of companies that we have seen for the last seven years or so, we help them to understand the pros and cons of their idea.
  • If I tell you the idea that you have, twenty other companies have started the same idea and nineteen of them failed and you should talk to those CEO’s, you’re not going to fail because you’re going to learn from them.
  • There’s no place on the internet for you to go and check why those companies failed, the best way of that is talking to those companies and learning from them.
  • Whereas if you’re a later stage company, you’re coming from Italy, you’re coming from Germany, you’re coming from Japan you have five million, ten million, twenty million dollars revenue, you’re coming and looking for a partner to grow at the US market.
  • If you talk to a VC, if you talk to an individual within a VC and from the get-go you have a comfortable feeling and talking to that person and you are comfortable with the personality and the kind of questions that they ask, it will give you a very good indication if this would be a marriage that you will end up with, then you probably have a very good start.
  • Do you have proposals that were so good that you still have them in your head because they stuck out? I can tell you the companies, they come and you get excited about the idea on top of the application, no matter how that company will be beyond hundred-million valuation.
  • The company is coming to you and you get impressed by the team but changing the idea, they made it to a hundred or a billion dollar valuation.
  • We, the companies, we get about 4,000 companies per year, different stages.
  • The bar is really high for the companies to get to over basically portfolio.
  • We get to about two percent of the companies that they come and accelerate their companies through our different programs and platforms that we have.
  • So my advice and from people that I have known who have done it successfully, if you can start something very early with your own money on a limited basis to build some proof and a proof of concept, that’s the best way to go because then you have something to show to a VC and as part of their due diligence process, they would like to talk to potential customers.
  • Most likely you are in a better position to increase the valuation of your company when you have to raise money.
  • The misperception is, particularly here in the valley, that people who are coming from the outside that money just grows on trees so to speak and it’s easy to get it because everybody here is the success stories of so many many many start-up companies.
  • Search what VC’s have done in the past, search their portfolio companies, in what markets they have more expertise versus the other.

Week 2: How to Approach a VC > Experts: 2.1 + 2.2 > 2.1 What a VC is Looking for and how to Approach Him/Her (2/2)

  • What are the main selection criteria in Silicon Valley? So Silicon Valley is actually a very tough place.
  • It’s beautiful here, of course, innovation is happening here left and right on a daily basis but there is a certain misperception from people who are coming to Silicon Valley.
  • It is very hard work and most importantly because everybody wants to be here, it is absolutely super competitive.
  • So overall I think that the difference here is, innovation is happening here on a daily basis.
  • Where, with a good idea, as a good entrepreneur you can make it here regardless.
  • What would you recommend when approaching VC’s? So the first and actually by far the most important thing I’d say is, remember this: Most VC backed ventures, particularly in higher tech, fail.
  • What a VC is doing when he makes a set of investment or she makes a set of investments, is buying an option from their point of view.
  • I’m putting a stake here and a stake here and a stake here and a stake here.
  • They’re buying the option to put more money in, out of the 10 plays they’ve made cause one of them is going to grow enormously.
  • So you may have a viable business of just that precise the point where the VC goes “Sayonara, I’m outta here”.
  • Because, you know, they were in love with you at the beginning when they thought you were a viable option.
  • From their perspective they don’t really care about you and they don’t really care about your business, they’re buying an option.
  • They’re not investing in a business, they’re buying a real option.
  • How would you approach a VC? I think the best way to approach the VC is through personal recommendations.
  • It could be that you know other enterpreneurs who have worked or approached VC’s before and they can make a reference or recommendation.

Week 2: How to Approach a VC > The Entrepreneur’s View > The Entrepreneur’s View

  • Can you explain how you decided that VC was the source of capital to go for? So when we had to bring in financing and other companies actually increase and develop the company, we were looking at the various sources that are out there.
  • So we were searching for a VC that actually could handle the marketplace development and is able to deliver the money we needed so we actually screen the market quite a long time and then found a couple of VC’s where we introduced our business and our team.
  • How do you select and approach VC’s? We approached VC’s in various ways; we tried to get personal intros to many of those VC’s by fellow entrepreneurs, by other VC’s, by other contexts we had. We were on many of those networking events and we eventually had to cold call some of their VC’s and there is no perfect way or no very bad way.

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