Finding the right funding for your startup begins by asking the right questions. You need to understand what venture capitalists want know about your company so that you can have the advantage when it comes to getting your startup the capital it needs to succeed.
Niko Bonatsos, the managing director at General Catalyst has said that being in Silicon Valley gives companies a huge advantage because there are so many VCs with hundreds of funds who are itching to spend capital. Fortunately, there’s a culture in the Bay Area of investing in “risky” early stage companies, making it easier for innovative ideas to get off the ground.
For Niko, finding first-time technology founders with strong product instincts, a robust appetite for learning, and a desire to create consumer-focused innovations is his goal. Niko also mentioned that when you accept funding from a firm it’s like a marriage, except you can’t divorce if things don’t go as planned. So it’s very important to choose the right investors who can help you grow your company financially, are aligned with your vision, and are able to provide the right support.
At Galvanize Study Hall, Niko was asked about the best questions startups should ask of themselves and investors. Some of the top questions VCs ask when considering an investment are also included. Check them out below to stay ahead of the funding game.
Startup Founders Choosing an Investor
- Have they invested in similar companies?
- Are they a major influencer, and can they be on your side?
- Can they write a check quickly?
- What is their decision-making process like?
- Does the investor truly care about your company or space?
- How much time do they have to spend with you? What’s their bandwidth like?
VCs Evaluating a Company
- Is there potential for your company to be a billion dollar company?
- Is this a company I want to be involved with for 5-10 years?
- What’s the growth rate?
- Do you have any evidence your product is a good product market fit? Or will you be using your seed round to research this?
- Have you identified a gap in your industry, and established a plan to strategically approach it?
- How much capital will you need to raise in the life of your company?
- Are you disrupting an industry?
- What is a niche market you can serve very well?
Miscellaneous Advice for Founders
- Be prepared to share some references and expect the VC to reach out and ask others about you and your company.
- Be prepared to show raw data.
- All firms have investment team members who are getting paid to get you in front of the right person, get a warm introduction to the domain expert and spend some time trying to network with them.
- Investors are motivated by greed and fear so if possible create a sense of urgency or FOMO (fear of missing out).
- Approach fundraising with a top of the funnel driven approach by getting intos though portfolios founders as there’s a 99 percent chance a VC will say yes to an intro from a portfolio founder.
- Get insights from that portfolio and do a little bit of homework. You can’t kick out investors on your board, it’s likely they’re going to be there for a long time.
- Remember Investors don’t want to hear from a founder who knows everything.
- After the initial meeting the investor might ask for a meeting with a couple other partners where you’ll be expected to share data and metrics, always be ready to provide those metrics.
For founders, if you can prove you have a product market fit and it’s obvious that customers are getting a lot of value out of it and can’t imagine their world prior to using the product that's a good start to raising capital. Above all else investors want to hear you are the most ridiculously ambitious founder who is willing to deal with the boring stuff and get shit done.