How to Secure Venture Capital Funding for Early Stage or Scaling Startups

If you are an early-stage or scaling startup that needs financing, you have probably thought about raising funds through a venture capital (VC) firm. They usually invest in innovative businesses with strong growth potential and demand equity in the company in exchange for their financial support.

Securing funding from a venture capital firm can be challenging and time-consuming as they have grown quite selective. VCs typically pool funds from institutional investors such as insurance firms and pension funds, focusing on investing in specific industries or geographic markets.

This article looks at what venture capital firms are looking for in the current market and how to ensure your early-stage startup has the best chance of securing funding.

Steps to Secure Venture Capital Funding

If you feel venture capital (VC) investment is a good fit, you must assess your business’s value, choose how much funding you need, and create a pitch for potential investors. Here are a few suggestions for startups to ensure that they successfully close the deal with VC firms.

1. State Your Objectives Clearly

Make sure your objectives are clear before approaching a venture capital firm. Are you hoping to expand your firm internationally and go public as soon as possible? Or are you looking to consolidate your position in the domestic market and grow internationally when the time is right?

2.  Choose the Right VC Firm

Before compiling a list of potential VC firms, research their objectives and target market.

After creating your list, conduct in-depth research. You can learn a lot about a  VC firm from its website, such as its portfolio and approach to investing in startups. Drawing comparisons between your business and the ones they’ve previously invested in could prove helpful.

3. Build Your Team

By the time you reach the stage of seeking VC investment, the demands of your business will already be taking up a lot of your time. You’ll need to focus on ensuring that your company is solid, and you must devote time to your pitch. Hence, building a great team around you is essential.

Venture capital firms will want you to have legal experts as well as strong teams in marketing, technology, HR, and finance. Make sure you pick expert advisors with experience in dealing with venture capital firms.

4. Prepare Your Pitch

Your content must help you close the deal successfully. Here’s what you need to have for better success with the VCs.

An Elevator Pitch: This should be a one-sentence summary of your company. Apple’s initial sales pitch for the iPod was “10,000 songs in your pocket.”

Executive Summary: Summarize your pitch’s main points in a few, simple paragraphs. Use charts and graphs along with text to enhance the content and make it easy for VCs to consume and process it.

Business Plan: Include the details of your business– your market, your plans to scale and grow, and the mission of your company, along with a description of your management, advisors, and a brief history. Describing your product or service, and explaining where it fits in the market and how it differs from competitors will prove beneficial. Remember to make it readable since most venture capital firms will skim through it.

Pitch Deck: Make a slideshow with a shorter version of your company plan, and use graphics.

5. Be Professional

Make sure your communication with venture capital firms is respectful and concise. Proofread your emails and clear any discrepancies that might creep in. Ensure that your communication is always polite and never condescending. VCs will be looking to establish a connection with your business that will help them towards investment and believe in you and your team. Good and effective communication will also lead to more enriching interactions.

6. Due Diligence

The due diligence process can be lengthy and complex. Check your documents, and be ready for any questions a venture capital firm might ask. In terms of documentation, you’ll need the following:

1. Copies of the Articles of Association (AoA) and Memorandum of Association (MoA) and any shareholder agreements of your business. (Shareholder agreements outline how a company is to be operated, the rights and duties of the shareholders, and the relationship between the shareholders and the company.)
2. Employment contracts and service agreements with clients.
3. A cap table with information on other investors, including how much of each type of share they own, as well as financial projections, management and statutory accounts from prior years, plans for sales and marketing, and client lists.
4. Your plans for product development, sales, and details about your team: skills and resumes.

7. Show Scalability

Show that the business you want to grow is scalable, and describe your growth strategy. For instance, are you going to require more production capacity? Where will this come from?  How are you going to promote your products or services? How will you fund future development? Will your IT platforms be able to handle the growing demand?

8. Be Open About Risk

All businesses face problems. However, you are more likely to gain an investor’s trust if you are honest about these problems and can clearly state how you would deal with them.

Final Thoughts

The secret to getting venture capital funding is choosing the correct VCs to pitch, making good content for your pitch, creating a compelling narrative to invest in, and staying on top of the details, such as financials and your company’s capital structure.

trica equity is a full-stack solution to manage your cap table and ESOPs effectively. We serve over 600 startups across India, the US, and Singapore. Book a demo to learn more about our offerings if you’re looking for ESOP and cap-table management assistance.