18. March 2013–
Raising venture capital has more in common with gaming than you might think – and Sitar Teli, a partner at Connect Ventures, early investor in SoundCloud and avid gamer, did a brilliant job joining the dots during the weekend's Startup Camp Berlin.
Addressing a packed-out crowd, and following a keynote from German Technology Minister Philipp Rösler earlier that day, she shared a humorous and frank take on fundraising dubbed by the MC as a top talk of the day.
Caveat: Raising VC funds isn't for everyone – and giving up equity for cash is probably the most expensive way to get it. For the small subset of companies who should be raising venture capital, though, here are nine cheats and tips to keep in mind:
1. Fundraising is social
First and foremost: "In a social game, the larger a network you have the better you do in the game," Teli said. Fundraising works in a similar way. "There's a good reason for this. VCs see lots and lots of deals. Last year, we were a completely new VC fund. No-one knew we existed and we still saw about 800 deals."
Enter the network: While some of Teli's contacts are more likely to refer good companies than others, she's likely to take any referral more seriously than a blind email. "A blind email, to me, says the entrepreneur isn't trying very hard."
2. Viral loops are highly effective
Creating buzz around you and your product is another way to cut through the noise. Say a VC spots a mention in a tech blog – then, even better, somebody gives your company a referral. "Now you have what might be a buzz around you – it's a viral loop."
Getting the good word out works with nightclubs and restaurants, and it works with startups. This doesn't necessarily mean constantly pitching TechCrunch's Mike Butcher or VentureVillage, she added. "Using your network is again a very good way of trying to create that buzz."
3. Check your heads-up display
If you've launched your product, you should know your numbers cold – that includes numbers of active users, how fast the company is growing per day and what specific acts convert people to active users. "If you don't have those numbers, you should be talking to a specific type of VC, probably a seed VC, or someone who looks at companies pre-launch rather than growing companies with traction."
4. Know your gamer
"My background is in consumer and social – I now also work with some SME B2B companies and freemium models," Teli explained. "If you're an infrastructure company, I could sit down for three hours and I wouldn't know anything about your company at the end of it – I'd know what you told me, but I wouldn't understand it."
She'd be unlikely to put money in – and, even if she did, she'd probably be less helpful to the company than a partner who is an established expert in the field.
Warning – a VC who knows he or she isn't a good fit might still take the meeting. "Don't assume that you will talk to the right person and everyone's gong to be good and say 'I'm not the right one, you should talk to this partner'," she said. Instead, get the right meeting from the start.
5. Practice builds skills
You should be able to explain your company in 30 seconds, three minutes and 30 minutes: "If you can't take a 30 minute pitch and condense it to a few sentences of why it's interesting, you're going to need to get a first meeting just to get people interested."
Practise various time lengths and various pitch angles: product angle, business angle, marketing strategy – all the core functions and areas you'll need to succeed.
6. Get ready for the boss level
With most VC funds, after a partner has spoken to a company a few times, he or she will bring the company up with the partership, Teli said. "If they're interested, the entrepreneur or the founding team will then meet with all of the partners."
This is the equivalent of a boss level. Both have a pretty high death rate but there are ways to get through it more easily. First: "If you made it to this level, it means at least one of the partners in the fund really likes you."
Talk to the person championing you in advance and get to know who'll be in the room – and especially who will be the key decision-makers. "What kinds of questions are they likely to ask? Who asks the toughest questions? Who can you ignore?"
Ask your champion to review your pitch before you give it. And, old advice but something not many people actually follow, ask entrepreneurs who've already raised money from the fund for advice on how to play it.
7. Don't play the game – play the player
You could play the game and talk to every VC on the planet. The catch: "If everyone says no, you've basically got 40 'no's – and the more you get, the less likely you are to get money." There are exceptions: when Teli invested in SoundCloud, while an associate at Doughty Hanson, "they'd been raising money for months and everyone said no," she said. "We still said yes just because we really liked the team and we really liked what they were doing."
In general, though, it's better to play the player: figure out and target exactly who you want to have on your board.
Another tip: look for partners on their way up within a firm, the ones who've done a few deals but haven't had a big hit yet. "They're still hungry," Teli pointed out – and therefore more likely to invest than someone who's seen it all.
8. Know the cheat codes
In other words, do as much as you can to educate and prepare yourself. Teli recommended Venture Hacks – a "fantastic resource" though not updated much and based in the US. "Read some of Brad Feld's books on how to raise money and be smarter than your lawyer," she added.
9. Failure is normal
Only a very few companies manage to raise venture capital money every year. Even those that do will still probably fail – and all of this is OK: "Failure is part of entrepreneurship, part of being a startup. The worst thing you can do is not try again..."