Sonntag, 22. Februar 2009

"approaching venture capitalists", part 4.2 of the series six steps to ventture capital

at the 2nd round meeting it goes along the same lines as on the first round. know your pitch, stick to your talking time. know who answers which questions. do not correct each other giving answers.

now it is time to hand out your references. and again: set up the schedule (yes or no, negotiation schedule, term sheet, final contract signing-closing). this tests the real interest of the vc, namely through assigning resources for the evaluation. having mastered the 2nd meeting, this either leads to a „no“ or a jump directly into the negotiation part. this will be the next part of the series.

having reached the 3rd round brings one positive problem: the vc´s approached until now were form the b-list. the leanings form the presentations and meetings will pay off, through refining the approach, the pitch. based on this, it is then time to go ahead on a-venture firms. keeping the b-vc as back up can be helpful.
following the same procedure as outlined above it is about making it to the 3rd round with two a-vc. the main difference now being, not to learn & to improve but getting qualified a investors.

there remain some side topic on approaching vc, which are worth looking at: timeframe, lawyers, costs, consultants and exclusivity.

as a general time frame, 6 month from the start of approaching vc until closing an investment are a reasonable timeframe for europe. 4 month are more seen in the anglo-saxon world.

lawyers are generally only necessary after drafting the term sheet. until then common sense suffices as singning anything which would cause obligations on the side are not necessary.

until a term sheet is signed, no costs of any kind should be accepted from the start.up by a credible investor.

if any kind of corporate finance/m&a,... -consultants which promise to bring investors to the start.up are involved, special care is required. upfront payments may sound plausible but as cash is a scare resource, only success fees should be accepted, based on real cash inflow on the account. generally have more then sufficient capabilities to acquire vc interest - if they do their homework. and paying a consultant just to be told to do the homework could be seen a waste of money. the combination of a compelling idea with preferences (see part 3) opens vc doors without the help of others.

recommendation: 1) approach 3 b-vc, 2) follow up after one week, 3) fix 1. meeting/conference call, 4) be prepared, 5)push for go/no + next meeting, 6) reach 2. & 3. meeting. 7) watch timeframe, lawyers, costs, consultants and exclusivity.

how to succeed in the negotiations with the investor will be the focus on the 5th part of the "six steps to venture capital" guide. that much can already be said: the aim is, that both parties are unhappy but still want to close the deal.

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