As your startup grows you will, at some point, look for Venture Capital funding. VC funding, unlike angel funding is big ticket and investors write big cheques depending on their interest in the start up. Most of the large Indian startups are all VC backed and have raised more than one round of funding. Rising capital is very important, however, it can be very challenging. Often times, an entrepreneur will have a great idea but nothing much else to show. So make sure you have answers to all these possible questions mentioned below before you go in for a VC round.
Here are a few tips that will be useful for raising VC funding:
1. Know your business
Knowing your business and the space you are working in great detail are very important while pitching to a VC company. Most of them will ask you questions and you need to be prepared. So, expect that you will need to cover the following:
• What does the company do?
• What is unique about the company?
• What big problem does it solve?
• How big is the market opportunity?
• How big can the company get?
You will need to paint a clear picture that the market opportunity is meaningfully large and growing, so you will receive questions such as:
• What is the actual addressable market?
• What percentage of the market do you plan to get over what period of time?
• How did you arrive at the growth rate?
• Why does your company have high growth potential?
3. Founders & Team
Just as much as an idea is important, the founding team and other members of the team are important. Entrepreneurs must show that they are passionate, dedicated and hard working. For most investors, the managing team plays a key role in deciding whether or not the company is worth funding.
4. Mapping the competition
All products are services these days have competitors and knowing all of them is a must. Almost prepare to answer the following questions:
• How different are you from your competitor
• What advantage does your competitor have over you?
• Compare yourself with the competition in terms of pricing and features
5. Marketing strategy
The investors always are curious about your marketing plans. After all, what’s an idea without people knowing about it? So make sure you have a full-proof marketing plan. Expect questions around PR strategy, social media strategy, projected lifetime value of a customer and advertising.
Any business has risks and investors putting money in are concerned about risks. Be prepared to be questioned on the following:
• What do you see are the primary risks to the business?
• What are the legal risks you have?
• Do you have any regulatory risks?
• Are there any product liability risks?
Any investor will want to know your current financial standing. This will be one of the most important sections while pitching for a VC funding. They will also have concerns over your future and the projections. So be clear about these aspects. Some of the possible questions can be:
• What is the company’s five year projections and what are they based on?
• How much equity and debt has the company raised?
• When will the company get to profitability?
• What are the key metrics that the management team focuses on?
8. Financing Round
The investors will also want to have to know about what the entrepreneurs will be using the money they are investing in and about the milestones will the financing get you to.
9. Exit option
All investors ultimately want to exit the company and look for a return on their investment. So make sure you highlight that option clearly to them. They will want to know about the probable exit – IPO or M&A, the timeline of exit and who will likely acquire your company.