Viewpoint






2021-10-01

HOW AND WHEN TO RAISE VENTURE CAPITAL?

How do I get a Venture Capitalist to support and fund my idea? When should I raise capital? These are two common questions I'm often asked by Entrepreneurs and startups considering raising investment capital.


First off - getting someone to invest in your business is not what should be considered the ultimate goal. Landing an investor and investment capital is a big thing, BUT in the greater picture of building companies, it is a milestone and not the goal. Remember, the goal is to build a sustainable and growing company.


In a study from 2017 titled "How Do Venture Capitalists Make Decisions?*", the researchers asked a series of questions to Venture Capital investors. One of the findings from the study was that only 10% of closed Venture Capital deals originated from deals where the company (that is the startup, founder, etc.) came knocking on the Venture Capitalist's door. Instead, by far, Venture Capital investors invest in opportunities that they have (1) sourced by themselves, (2) have come in contact with earlier in one way or another, or (3) have been recommended to them by say a Founder or another investor they know. Remember, in general, the Venture Capital industry is highly reference-driven - and this fact is to large extent illustrated by the study.



So how should you raise capital for your idea and business if you don't have contacts and people you know within the Venture Capital industry? Start speaking to people. Start connecting and building your network. For sure this will take time, but this is the best way to do it. What if you need to raise capital NOW? If you need to raise capital NOW and haven't done your homework, try to find a bridge solution that will buy you enough time to start building and maintaining the investor relations you need.


This also answers the question of when you should start raising capital. You should always be in the process of developing your capital sources and maintaining your network of potential investors. This makes raising capital not only more likely, but also more likely that you will find an investor sharing your vision, values and way of working - which at the end of the day are critical elements.


Now, if I have still not managed to convince you, think of this from the investor's perspective: Whom should I invest in: the unknown startup knocking on my door requesting urgent capital; OR should I invest in the team and Entrepreneur that I'm familiar with and who's vision is in line with how I see the world?


Conclusion: Building and maintaining your network of potential investors should always be an ongoing and value-creating process.


Source: How Do Venture Capitalists Make Decisions?*