2nd Advice – Generals Rules of Engagement:
VC's are looking to invest in projects that have some traction and have been validated by others: well-regarded angels, key partners, serial entrepreneurs, etc. VCs also like “hot” deals that other reputable VCs are pursuing. You are much more likely to close a deal quickly and cleanly if you have more than one fund ready to give you a term sheet (and the other funds know about it.) Here’s how you get there:
- Find trustworthy, mentally stable mentors and place them on your advisory board. They need to have experience raising capital as a founder or CEO. Get them to invest – even a small amount – in the company. Reward them with stock options over time. These mentors should help you avoid costly mistakes and build momentum when working with VCs. An excellent mentor’s involvement is good for you and the VC.
- Don’t give options to advisory board mentors unless they invested in your business. It importamt to create a healthy dynamic Don’t be star-struck and taken-in by very rich or successful names. Use your “feminine intuition” to know who can really help. There are a lot of “important” people out there that will believe that their advice was the main reason for your success.
When you meet with VC's in order to raise capital, be ready and attentive:
- Spend time with experienced friends and use the Internet to learn how venture capital models work. There are a lot of nuances.
- It’s not hard to get meetings; VCs are always looking for great ideas. You’ll know that they are sincerely interested when you keep getting more questions and more meetings. When you meet with a partner for the second time, you’ll know you are making progress.
3rd advice – Important facts about Venture Capitalists:
Venture capitalism is a serious industry with very accomplished and competitive players. It’s a hard industry to succeed in. VCs may or may not be polite or empathetic people, but they will invest only if they believe they can make a high return. Angels and VCs make decisions for different reasons. Angels may be much more spontaneous or intuitive. They can invest from many reasons; sometimes even for fun. With VCs it’s a serious process. Because it’s so serious, some entrepreneurs get overly humbled, blinded or flustered by the situation. So, don’t be.J
During your meetings, discussions, and negotiations, remember that the VC’s mission is to make sound investments, harness your experience and time, and to achieve a maximum internal rate of return (IRR). You will be investing your best years and your soul. These are very rare commodities and your greatest selling points. VCs are investing other people’s money and they are looking to build a diverse portfolio. They want you to succeed -- and will do their best to help -- but they have less to risk than you.
- Unlike “Mensch” angels, VCs will be your embedded business partners (with money) -- not friends, not enemies, not mentors and not saviors. Like professional football and hockey, this is a competitive endeavor, and the VCs can play hard. While they will not deliberately hurt you, they will look after their interests first, according to the terms of the deal. You need to know this going in.
- Meeting VCs will be a learning experience. Try to enjoy it. They will often know a lot about your industry including recent trends and meaningful players. They meet with many companies, and if you develop the right rapport, they will provide a lot of valuable information and feedback. I benefited quite a lot from VCs in this way. These firms helped me refine my story, obtain leads, learn of industry gossip and make business decisions.
I founded and ran 2 companies, www.fiftyone.com and www.payoneer.com . Between both companies we have raised US$41million in 16 rounds from 9 VCs and 40 angels. Both companies are now profitable with revenues that exceed $100MM USD