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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Samstag, 14. Februar 2009

"approaching venture capitalists", part 4.1 of the series six steps to venture capital

„giving and taking“ is the name of the game now. have bright ideas but no money, investors have, well, money and the need to earn profits. so both parties have a mutual interest to find to each other. therefore mutual respect should be the basis of the interaction on both sides.

this is the 4th part of the "six steps to venture capital" guide, where the systematic approach to acquire venture capital for a is discussed.

after the motivation got sorted out in step 1, the a-b list of potential investors in part 2 (part 1, part 2) got filled and the battleground got prepared in step 3 now it is time to approach the potential investors.

first thing to do is to contact three venture capitalists from the b-list (as laid out in part 3).

the best way to contact is through references (see here on general discussion of references in the context of venture capital). if that is not possible, it is worth to investigate on how to get in touch best with the respective firms. there has been an interesting discussion on that topic also at web2.0 berlin 2009, see here.

in case of doubt, just call the vc firm and ask which way of contact they prefer. when calling though, be prepared for the (unlikely) event, that you get put through directly to a vc partner or his associate. in this case, either just ask how to forward your project or use the opportunity to try the already prepared (and peer group tested!) 2 minute telephone pitch. depending on the latter, the executive summary could be looked with more or less care at the first screening.

having found out the way to contact, send the executive summary and announce to get in touch personally one week after.

follow up after one week as said. use whatever way fits best, e.g. by using an open approach like, „any questions, additional information wanted“. key is to find out if they interested or not. it is not worth to run after a vc for 2 month. reading the executive summary takes 10 minutes.
2nd thing to find out is how to set up the next step. be it a personal meeting or a online presentation/telephone conference. know how the time frame for meeting will be and who will attend.

when succeeding to get the 1st meeting/online presentation prepare the team: ceo and cfo are sufficient. prepare the pitch and stick to the time frame. decide who answers on which questions beforehand.
also the start.up has to have the questions to the investors prepared. a start.up which has no questions to the vc did not prepare.

at the end it is all about fixing the next steps. when - if not directly - to get an answer for go/no-go and about discussing the timeline for a follow up meeting.

if an invitation for a 2nd round discussion got nailed down, it is a ll about making it to the 3rd found. the basic idea is the same as for the first encounter. ahead of the talk, fix time frame, fix topics, check on participants (investor, start.up). additionally prepare references, have the non disclosure agreement (nda) cleared out in the meantime (so that legal stuff does not waste scare meeting time and legal topics potentially poison the spirit, long story short, that often leads to accept the nda of the vc).

handling the 2nd round meeting comes up at the second part of "approaching venture capitalists", part 4.2 of the series six steps to venture capital.
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