Meeting with a VC can be daunting, but if you prepare properly, you stand a better chance of getting the funding you need to grow your business. Follow along as we take you through some critical questions that will help you best represent your company’s strengths.
Figure out what makes your company valuable
Before you can start asking for funding, you need to have a realistic understanding of your company’s value. And not just how much you think your business is worth—it should be grounded in some sort of reality. To get you started down this path, first, it helps to honestly reflect on your company’s strengths and weaknesses.
Major factors to consider:
Strength of the management team
• What experience does the management team bring?
• Past successes?
• What makes your team special?
Size of the opportunity
• What is the value of your target market?
• What is the addressable market size for your company?
• How unique, valuable, or interesting is your product?
• Is your IP well defined?
• Do you have any traction yet?
• How tough is the competition?
• What are the challenges or barriers to entry?
• Do you have a captive beta audience?
• Have you worked with any notable partners?
• Any early wins or success stories that validate your organization?
Need for Additional Investment
• Is there anything else that is working for or against you?
• Do you have very positive existing customer feedback?
• Do you have a competitive advantage because of your location?
Think critically about how your business stacks up to the competition in each of these areas. In what areas do you excel? Where might you want to improve? One major point of this exercise is to help you determine where your business falls in the continuum of startup valuations—do you belong at the top, middle or bottom? Having more awareness about how you stack up can help you make your best case for why you deserve funding.
Coming to terms with the term sheet
Now that you’ve considered your company’s relative place in the market, it’s time to focus on more concrete topics. Before you walk into a meeting with a VC, you should already have a clear strategy for the term sheet. One of the key components of your initial discussions—and overall VC relationship—is getting this critical document agreed on.
You can think of the term sheet as a sort of roadmap that outlines the basic terms and conditions of a VC partnership—which will also be the start of any legally binding paperwork that comes later. At its core, the term sheet is about setting up protections for each party and establishing who gets what.
Before you meet with a VC, here are some questions you should consider:
Equity and options
• How much equity are you willing to give up?
• How much should you set aside for the option pool?
VC track record and past performance
• What is the VCs track record?
• How successful are they?
• What do they invest in?
• Do they invest in companies like yours? If so, how much do they typically invest?
• Have they invested in a competitor or potential competitor?
• Has a competing VC invested in a company like yours?
• Are they missing out on a growing new segment?
• Are there potential opportunities for additional cross-collaboration—have they invested in companies or technologies that may be beneficial to you?
• Similarly, could your company provide additional benefit to companies they are already investing in?
As important as it may seem to get the highest possible valuation right out of the gate, the term sheet is just a starting point down a much longer road. Everything that is negotiated will significantly impact your business now and in the future—so be very thoughtful in your approach. Though there will still be a lot ahead of you, some honest reflection on your prospects is a great place to get things started.