If your startup is based in a major tech hub like New York City, Boston or the Bay Area, the good news is that there are plenty of deep-pocketed VC investors walking around, just looking for a reason to write your company a nice, fat check. The bad news, however, is that you are going to have to jump through a lot of hoops and perform a lot of neat little tricks if you are going to get them to write that check.
The first thing you are going to need to do is to come up with a list of potential investors. Most top VC funds specialize in a specific type of company at a particular stage of its growth cycle, so it doesn’t take a rocket scientist to realize that your path to raising millions of dollars in VC financing is going to be a lot easier if you approach the right people. For example, if a VC fund says it only does “clean tech” deals, then there’s a good chance that your brand-new AI startup that does some pretty cool deep learning work probably is not the best fit for that fund. (Unless, of course, your AI startup has figured out a way to reverse climate change by using techniques from deep learning!)
Next, you’re going to need to come up with a “pitch deck.” You can usually get by with just 10–15 slides to show investors. While these folks might have a lot of money, they don’t typically have long attention spans(under 4 min). You’re going to put them to sleep if you have slide after slide explaining how your technology works. At the end of the day, all they want to know are a few key facts — how you plan to make money, how big is the market opportunity you are pursuing, and how big of a market share you realistically hope to claim. If you can show them that you’ll be a monopoly player in a multi-billion-dollar market, game over. You’ve won the jackpot.
Finally, you’re going to have to come up with the right amount of money to raise from VC investors. This number might seem arbitrary, but it comes packed with a lot of meaning because it helps to create an implied valuation for your company. You can think of valuation as a sort of market perception of how the broader market views you. If you’re in a particularly frothy industry, valuations are going to be sky-high because everyone thinks the market is going from zero to infinity really fast.
The one tricky point in all this is that VC investors are not just handing you over a big, fat wad of cash to spend as you please, only because you’ve been a good little boy or girl. No, they are also getting an equity stake in your business, and VC investors are notorious for demanding a considerable share of your business to give them as big of an upside as possible. Their goal is to invest in “the next Google” at the ground floor level, when the company is worth as little as possible, and grab as big of a stake in the company as possible so that when things pop, they become even richer than they already are. That’s why they’re called “venture capitalists” and not “venture philanthropists.”
That’s why everything you do when it comes to raising money from VC investors needs to take into their expectations, their perceptions, and their needs. If you can show them, in 30 seconds or less, that you can make them a lot of money, they will be all ears.