Venture capitalists see thousands if not tens of thousands of business plans every year. They typically fund fewer than three. To raise money from a VC, you need to set yourself apart from the crowd. Every venture capitalist is different. While they may all look similar from the perspective of an entrepreneur, speaking as someone who has been on both sides of the table I can tell you that they all have unique and different expectations about what makes a great company. Some venture capitalists like to follow the herd, that is, they invest in a category that a lot of other investors are making bets in. So if communities are hot and you have a great company idea for a community, and a great team, you may be able to raise money simply because you have a company in a hot space. Other venture investors take a contrarian approach. They want to fund against the grain. They will invest in enterprise software companies when few other investors are. Or they will fund a company that many other investors have passed on (e.g. declined to invest in). Venture investors typically (but not always) don't make multiple investments in a single sub-category. Within the large category of Internet startups, for example, a particular firm may already have invested in a company in the sub-category of online shopping. So if you have an online shopping company (to continue the example), it's highly unlikely that a firm that already has a similar investment will invest in you as well. In fact, in general, it's probably unwise to pitch that firm on your idea. Because venture investors get to make so few investments over the course of their careers, they have to make investments in companies they believe will be big. Not every firm has to make exclusively big investments. Some firms like to diversify by investing in highly risky but potentially big opportunities while also investing in somewhat smaller but less risky companies. But to deliver the sort of returns the investors in the firms expect, most venture investments have to be in big companies. Many pitches present features or products, but not venture fundable companies. My advice? Make sure your idea is big enough to merit venture investment. If it's not, then look elsewhere for funding. If you don't, you'll find your spending a lot of time trying to raise money when you should be spending time working on your product and attracting new customers. If you do have a big idea, however, venture capital may be for you! |
