You create value by doing the following before even calling a VC:
- Build a team of 2–3 committed founders with 10+ years' experience each.
- Develop a business plan, based on in-depth market research and competitive intelligence which covers your strategy for marketing, sales, operations, finance and product development (pure service companies rarely get VC money because the margins and competitive advantage is harder to justify the ROI these investors need).
- You develop a product that can be protected via intellectual property or other methods to create and maintain some “Sustainable Competitive Advantage” (SCA). First to market is SCA if there is a “Network effect” whereby you can maintain a lead through customer critical mass (i.e. Facebook/Meta)
- Ideally, finish a product and get some “Traction” which means customers paying. Angel investors may not need this, but most institutional investors will need this “Proof of concept”. Back in the 1980s and 1990s, many VCs invested in “seed deals”, where the money went to developing the product. Today it is rare unless you are Elon Musk.
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Realize that most people MUST typically go through Founder investment (cash + sweat equity), family and friends' investment (usually $50K to $250K) and angel investment (Often $500K-$1M) BEFORE they are likely to get to a point where professional VC will invest. It is highly unlikely that approaching VCs will get you any money without creating value first. This is quantified by a “Pre-Money Valuation” which is used to determine the percentage of the company they will get for their investment. This goes up with each step above you complete, often doubling or more with each step. If all you have is an “Idea” you have ZERO pre-money valuation. Even a plan adds little without an experience team with the proper experience to execute the plan. Team is 50% to 75% as a good team can fix all the other issues.
I have a free eBook called The Top 8 Reasons Companies Fail to Raise Funding and also provide training, coaching and consulting to help people raise funds from outside investors.
People think, due to headlines in the press, that raising money from VCs is easy. It is not. Typically, it takes a company 3–6 months of halftime work of the CEO and all these things must be in place before starting. The due diligence process is elaborate to verify the team, technology, customers, etc. Few fall for the lies that Theranos’s 20-year-old founder Elisabeth Holmes provided to amateur investors. She was convicted of fraud and will do jail time for her lies to these investors. It remains to be seen if any board members get sued. I think they should have financial liability as they failed in their legal duties. These were not professional VCs but wealthy people trusting a “Board” that failed to do its job and was famous, wealthy people, not quality investors.
How to Raise Millions for Any Company - Online Video Course
Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
Call (619) SCALE06 or email info@AirTightMgt.com for a complementary strategic consultation.