Why won't the venture capitalists give you venture capital? Why won't the investors invest? We sat down with Robert Neivert and Rui Ma of the 500 Startups team to learn about funding decisions and criteria from the investors' point of view. Behold their pearls of wisdom!
So how do I make my startup look awesome?
VCs see tons of new startups every single day, so it can take a lot to impress them - but it's not impossible.
According to Robert Neivert...
- Clear metrics of progress are almost always proof that the company is being handled well. Most VCs have a list of bullet points they run through with each company. For example: What are your marketing strategies? What’s your margin? Strong numbers make investors feel more comfortable taking risks for your startup.
- The team should have a varied skillset. “The more varied the skill sets of a founding team, the more likely they’ll be able to tackle new obstacles and adapt,” says Robert. He wants to see founders capable of building strong, close-knit teams that get along well.
- The ability to follow through is crucial. You build credibility by saying what you will do, and then getting it done. “Remember,” he reminds us, “an idea by itself has almost no economic value. It’s the EXECUTION of the idea that matters.”
- Robert emphasizes that in every application, he looks for at least “one amazing thing.” Maybe the company has a million active users, or maybe the founders have a unique history of success, etc. If you clearly stand out from the crowd, there is a much higher chance VCs will remember you.
Rui Ma offers her experience:
- The way you make your product tells a story about how you work, what you can produce, and how reliable your team is. "When I ask you about your product, it becomes very clear how well you understand your market," Rui says.
- How willing are you to change and adapt? Most startups will go through changes before they settle on a final product, but the great teams should have no trouble adapting.
- How well do you attract talent to your team? If you can convince amazing people to follow you, then you can probably convince the market you have something worth using.
How should I get in touch with investors?
If the first time someone ever hears from you is your pitch at their face, it adds an element of personal pressure, which can hurt your chances. Rui Ma suggests making a simple mailing list of potential investors and sending monthly updates of your company’s progress, highlighting key points such as what’s been done well, which problems you’re working on, and trend charts with a few core metrics.
VCs are busy and may receive hundreds of emails every day, so it’s wise to make your updates easy to read - and be sure to include core numbers from the previous months’ updates as well. Investors are most interested in growth. Robert adds that if investors have to scroll down very far to finish reading your email, it’s not likely to hold their attention. Keep it short and work on those metrics!
There are so many! How do I choose?
Do your research! “If VCs make an investment, it’s public information," Rui explains, "so it’s easy to research who has put money into which causes.” You can even email people who have received investment before, to see if the investors were good on their promises.
The more investors you have, the more stable your situation, since you're less likely to be affected if one of them has a problem. "In a seed round, it’s not unusual to have around 5 or more investors," Robert says. "In later stages, though, it’s okay to have 2 or 3, and that will be become natural as you move forward." But keep making friends; when people can vouch for you, your network will be wider, and you'll find yourself with more reliable choices.
"Make sure the VC understands the market you’re in," Robert reminds us. "Or, at least, that they have invested in it before." Even with years of experience, an investor won't feel safe making decisions in every field or subject. "But remember," he continues, "while VCs are not experts in YOUR business, they know what the early stages of companies SHOULD look like, so they can punch holes in false companies very quickly."
Very few succeed on their first try, and investors know that. But if you can learn from your mistakes and plan carefully, you can give a return on investment that will have VCs lining up at your door (or at least responding to your emails).
Try to imagine it from their point of view - would YOU invest in you?