How to Attract Venture Capital as a Startup

Jul27, 2017

As a venture capitalist and professor of entrepreneurship, startup founders often ask me how to get the attention of investors and attract their next round of capital. 

Recently, I had the pleasure to share my thoughts on the topic with the Booth Review on a panel with Katherine Wanner (Abundant Ventures) and Steve Kaplan (Booth School of Business). Below, I condensed the three most valuable insights from the discussion: how to approach an investor, the importance of the founding team, and what metrics you should track when starting up.

While there is no “silver bullet” for the fundraising process, experience has taught me a few things. If you’re an entrepreneur or founder, I hope these insights could help you get your next round of funding.

How should I approach a venture capitalist?

I can’t stress this enough: get a warm introduction to potential investors.

At Hyde Park Venture Partners, most of our deals come from referrals–either from our portfolio company executives, fellow venture capital firms, or other industry connections. This group usually has a good idea of how we invest, and likely have an idea of what startups we’d like to get to know.

“When approaching a VC, try to get a warm introduction from a mutual connection–a founder or adviser of a portfolio company.” – Ira Weiss

Can you reach out directly to potential investors? If you have a great business and you fit well with their other investments, of course–investors would love to get in on a good deal.

Does that mean you should cold email every investor? No–do your research first! For full disclosure, I can’t recall investing in a startup without a warm introduction. Do this as a last resort.

What’s more important: the idea or the team?

If I have to choose, I believe the team is the most important factor in a startup.

“The team is the most important factor in a startup.” – Ira Weiss

While I admit you can’t win the race without both the jockey and the horse, I would choose an “A” team with a “B” idea over a “B” team with an “A” idea.

If a startup hasn’t perfected their idea, that’s okay. Most companies make slight adjustments to their core idea, and some even make major pivots. For example, Odeo was a podcasting startup before shifting and hitting success as Twitter. Glitch was a video game startup that almost lost all of its $17.2 in venture capital before pivoting to Slack.

What financial metrics are relevant to startup investors?

Financial metrics are important for startups, but don’t drive yourself crazy over them.

Early-stage investors like Hyde Park Venture Partners don’t invest in companies because of your three-year revenue forecasts–usually, they’re wrong. Rather, we invest in tenacious, resourceful, and responsive management teams who are solving big problems with great products.

That said, we love to see whatever progress and information you have. Even if that’s not a full-blown financial model, it’s important to build and update something internally so you know that your business is going after something attractive, and can track the progress. In SaaS, that means we’re curious about metrics like your customer acquisition cost (CAC), customer lifetime value (CLV), and churn rate.

“Even if you don’t have a full-blown financial model, it’s important to build and update something internally so you know that your business is going after something attractive.” – Ira Weiss

Every investor is different. If you’re curious to hear the full conversation, check out the video below.

 

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