The success of a fundraising process is entirely dependent on how well an entrepreneur can manage it. At this stage, it is important for founders to be honest, straightforward and recognize the value meetings with venture capitalists and investors can bring beyond just the monetary aspect.
Here are five pointers that founders should consider while pitching to venture capitalists:
Be honest and accurate
Raising a venture round is, in a way, a sales process, but any claims that could call into question a founder’s trustworthiness can result in a negative outcome rather than an investment.
As VCs, we cannot overemphasize how important it is that founders are transparent and upfront.
Here are a few select cases of such claims:
- Overstating traction or revenues, which due diligence brought to light.
- Concealing material attributes of the founding team — such as a co-founder’s commitment to the company, which at best was part time.
- Speaking of committed investors who were about to wire money to the company, except they were still at the due diligence stage and eventually decided not to invest.
Investing in early-stage companies is often about making bets on people. As VCs, we cannot overemphasize how important it is that founders are transparent and upfront. It is critical to help establish the initial seeds of trust with a capital partner.
Further, most investors understand that things change — if there are any material shifts during the diligence process, communicating them promptly is an additional signal of maturity and uprightness. This will go a long way during the capital raise and beyond.
Know your BATNA
Founders often enter conversations with venture capitalists with a good handle on their product and the business. However, it’s common for entrepreneurs to falter at the negotiation stage, not knowing what their best alternative to a negotiated agreement (BATNA) is.
We have witnessed founders who mistake initial interest in the venture market for real commitment, and unreasonably hike their valuation, which results in them losing serious investors. We have also seen founders fail to ascribe the value serious VCs bring to the table and consequently hesitate to discount their valuation, only to later realize that the existing cap table lacks firepower.
The best way for founders to uncover their BATNA is to run an efficient process. This requires:
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