Securing startup capital requires innovative thinking
We spend a lot of time working with new companies. Throughout Tennessee’s statewide accelerator network and in our direct interactions, we’re talking with entrepreneurs who are at every stage of development, so that we can support them all along the way.
For the earliest visionaries, that means help with crafting a business plan, introductions to potential co-founders and pilot customers, or some space to set up shop. As these companies grow, our network of mentors and business partners works with them on everything from patents to sales strategies to how to attract and retain employees.
When we choose our best and brightest for the annual TENN master accelerator, we know that they’ve already implanted, or are implementing, all the lessons they’ve learned through one of the accelerator cohort programs. At this point, however, we’re taking these young companies on the road, and so we implement a focused, more intensive training on how to interact successfully with investors.
Why is this key? As any successful business owner can tell you, operating a company is huge. Startups have even more on their plate. But if they get off on the wrong foot with venture capitalists, bank loan officers and other funders, they may never bring their great idea to market.
LaunchTN is committed to getting entrepreneurs in front of angel investors and venture-capital providers in Tennessee, the Southeast and on both coasts. While you occasionally have the entrepreneur who can bootstrap their startup, the vast majority are seeking outside capital in order to grow the business.
There’s no magic recipe when it comes to securing capital. There are many tips regarding investor relations, but here are a few that are particularly relevant to entrepreneurs seeking that first round of outside capital:
Leverage your network: Use your contacts to find direct connections to investors. While some investors will answer a cold email, it’s not a sure thing, so the best outreach method is a warm introduction from a mutual contact. Hundreds of deals come across investors’ desks, so your chances of securing a meeting with an investor are much higher if you come vetted by a mutual acquaintance.
Having trouble finding those connections to investors but have 600 LinkedIn connections? Spend a Saturday combing through mutual connections to angel investors or venture capitalists, but focus on those that have previous experience investing in your industry.
Have big ears: Work with mentors, coaches and others to talk about your specific business, as well as current trends in the industry and early-stage investment. Use these opportunities to ask for questions and direct feedback. This will help prepare you for any situation and question a potential investor might throw at you. Investors want to see deep market knowledge and a keen understanding — along with passion — of why your company is going to be one that will disrupt the status quo and generate a return of capital for the investors. They also want you to have a general understanding of typical valuations in the region — don’t come into the meeting talking about a $6 million pre-money valuation for a company with $100,000 in revenue when the average in the Southeast is closer to $2.5 million.
It’s a process: I often hear from entrepreneurs frustrated that it’s such a long road to get investors to commit their capital. While I understand the frustration as the entrepreneurs are living on ramen noodles and leveraging credit cards, they need to realize that investors are trying to be good stewards of their limited partners’ dollars. Additionally, once the check is written, the entrepreneur and the venture capital partner will be spending lots of time together (many VCs talk to their founders every week), so this “dating” process is necessary to make sure there is good alignment before taking the next step.
While it’s far from easy to find outside capital, securing a relationship with an investment group that is providing the necessary funding as well as strategic value and industry connections can be the key step to an entrepreneur’s success.
Charlie Brock is CEO of Launch Tennessee (www.launchtn.org), a public-private partnership focused on supporting the development of high-growth companies in Tennessee with the ultimate goal of making Tennessee the No. 1 state in the Southeast for entrepreneurs to start and grow a company.