If you’re turning in to this guide, chances are you’re a startup with ambitious goals, specifically funding goals. You might have acquired seed capital from founders personal assets, family or friends. You’ve likely tried your hand at crowdfunding and acquired funds from angel investors. These early investments have helped grow your business from ideation to product development and maybe even a bit further. But, inevitably, these funds are no longer enough to get your business to significant profitability. That’s where venture capital comes in.
Venture Capital (VC) is funding given to a startup in exchange for equity in the company. In this context, a growing startup in need of money to help sustain its growth seeks out venture capital investors or firms for funds that will help bring their startup’s goals to life. And unlike the thousands of dollars that early investments produced, VC funding typically brings in millions of dollars.
Series A, B and C
The first step in getting to the major leagues of venture capital is Series A. In fact, Series A funding in 2019 was more than $11 million. In this stage many investors look to annual recurring revenue (ARR) as a north star metric to determine if a startup is worthy of their investment(s).
While there’s no black and white answer to how you should determine if you’re ready for a Series A round, passing the $1 million in ARR mark is commonly seen as a good signal.
Naturally, Series B is the next stage of funding. But unlike Series A and earlier investment channels, VCs put an emphasis on growth rates and historical performance, in addition to the ARR. To put these expectations into perspective, the average Series B funding in 2018 was greater than $24 million dollars.
Series C funding is known as the highest level of investment and introduces influential investors such as private equity and hedge funds. Startups who reach this stage of funding typically have experience negotiating and working with venture capitalist firms, which is why these rounds are $50 million or more and come with lead investors who are responsible for managing negotiation meetings. Other topics you might expect to discuss in this round are due diligence and pro-rata rights.
Tips to Navigate the VC World
Once you’ve made the decision to enter the world of venture capital, there are some important factors and best practices that need to be considered.
Find the right VCs.
Do your due diligence and research on various venture capitalists and their firms. Doing so will help you identify competencies, areas of conviction and investments in other competitors. You might also want to scan a VC’s portfolio for similar business models regardless of sector. If you’re selling to SMBs and many of the firm’s companies do as well, the VC could be a good fit.
Go beyond the cold emails.
Just like cold calls, cold emails aren’t exactly compelling and are a poor strategy to get the attention of very busy investors. If you can swing a warm introduction—a third party recommendation to a venture capitalist—that’s ideal. Regardless, make it a point to stand out from the sea of startups and network. After all, it’s often about who you know in the startup world. Get involved in communities on social networking platforms or in person at local meetups.
Know how to craft a pitch deck.
When you land your meeting with a VC, chances are you only have a short amount of time to impress them. While an authentic founding story is important, 15 minutes on your whole history is a waste. Consider everything including: length, multiple presentation formats, printed copies and a call to investment.
Of course, these suggestions only scratch the surface of pitching your startup to investors. For more on pitch deck best practices, Embroker put together this guide to venture capital—geared specifically for startups. It also covers important details like how to decode a Series A term sheet, D&O insurance, Series B and C funding and more.
Charlie Hughes is the VP of Growth & Partnerships at Embroker. In this role, he is responsible for marketing, lead generation, and business development
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