Am I ready to approach a VC?
Almost every single entrepreneur has faced the same situation: Lack-Of-Funds. As their project grows and after burning through the FFF cash and the seed phase of the company, it’s time to step up to the plate and into the big leagues in order to be able to keep growing. VC territory.
VCs are the most common pot of gold for those whose project has been tested, has been somehow successful and is ready to be launched. However, is everyone’s project ready to be presented before a VC in order to ask for funding? We face this situation on a regular basis here at INLEA LEGAL, and through our mentoring program, we try to shine some light on our client’s path to take them further.
Let’s tackle the first question we present and let’s try to give it some coherent answers:
Should I approach a VC?
Most common answer is YES, but we need to differentiate between “Am I ready?” and “Is it too early?”.
Most VCs we usually talk to would say it is never too early to approach them, they are usually happy to get to know a project through its seed stage and get some early knowledge on it, but some VCs will not even give you the time of day before you are actually at the point of fundraising actively for your Series A-B-C. We usually try to recommend our clients to pitch VCs when they feel like they have a solid project, even if they are not fundraising actively to try to take out of the equation the “we do not know the team” variable when VCs do indeed look out for projects to invest. Approach the VC when it really wants to take the meeting.
When is it good timing to approach a VC?
2 to 3 pm on a Wednesday. Just kidding. Our common guideline for start-ups getting ready to face a VC is quite simple: who is leading the ship, are you growing right now and how much do you need. If your leadership is strong and you have a clear path towards your goal (even if your goal at this moment is divided between A-B-C for possible options); if your product is marketable with a price and its gaining attraction; and you have potential customers acquiring your product, it is just a matter of how much cash do you need in order to reach the next step in your growth. And if all of the above is crystal clear, then you probably are in a good position to approach a VC.
Which is the right VC for me?
Most of our clients think VC hunting means shoot to as many as you can and one will fall. That is a strategy we really try to get out of their heads. As much as you need to know the target for your product, and you market it accordingly, you need to market yourself accordingly to VCs. Do your due diligence on VCs. If you are in the mindfulness market, do not approach VCs who only invest in real estate for example, it will probably be a waste of your time and theirs. Look for the right verticals, look for the right geographical areas, look for the right growing stage and then, and only then, circle the VCs that tick your boxes and go hard at them.
When will I run out of cash? Time your approach
If your burning rate will make your company only last 6 more months before bankruptcy, you are probably about as close to a deadline as it is. Funding rounds with VCs usually take quite a while to reach a deal and the 6 months gap is quite a standard. We recommend, if this is the situation, to have several parallel conversations with several VCs, but not too many or you won’t be able to give them the sufficient needed attention.
Wrapping up in this first article, focus on your product and on the potential VC working your field. Do not settle for less than what you are worth, and try to keep your freedom to maintain your idea of what your product should be. Using their money in a smart way of course!
