The funding process, which is typically funneled through a venture capital (VC) firm, is an extremely common way to take a startup company to the next level. It’s a major component of many business plans, and while it’s most popular in the technology sector, it’s used in virtually every type of industry as well. The purpose for VCs to invest is to gain equity (either shares or part ownership) of the business. Knowing how to find a venture capitalist is an important step to bringing your company to life, or to the next level.
Understanding the Entire Investment Process
The VC funding process is fairly straightforward, meaning it typically follows a pattern, which goes as follows:
- Deal origination/sourcing
- Meetings with the VC firm
- Due diligence/internal audit phase
- Negotiation phase
There are usually three or four stages in the investment phase, which are the following:
- Seed stage: The first round of funding. This is the initial influx of capital into the business.
- Series A funding; Used to help the continued growth of the company.
- Series B funding: Once the company has been launched and has a proven business model, Series B funding comes into play.
- Series C funding: If the company is growing and needs more resources to proceed to the next level, then there is another round of funding, Series C.
How To Find a Venture Capitalist
As with many types of business deals, it’s important to do your homework. The first thing to do is to research VC firms that seem to be a good fit for your company. Not all VC firms are all things to everybody, so look to see if it’s a good fit. By going online and reading the blogs of VCs, you can see who is out there and what their interests are. That will help you narrow your search and use any of the below methods to help put you in contact with a VC that can help you fund your company.
Where Do You Find These Investors?
There are several ways to find all types of investors. Doing your research beforehand will weed out the names that probably wouldn’t be a good fit. But here are a few ways to find the firm that would be best for you:
- Follow on Twitter: Following anyone, including VCs, on Twitter is free and easy. Once you’ve found someone who might be a good fit, you can easily contact them by direct message or replying to one of their tweets.
- Use LinkedIn: LinkedIn is a very easy way to connect to others in all fields, including VCs. Once you’ve started to grow your network, you’ll find yourself closer and closer (meaning more shared connections) with others in the investment industry.
- Network at industry events: VC firms are known for attending industry events, particularly in the fields that they specialize in. Meeting face-to-face can certainly shave off a lot of back and forth when it comes to phone calls or email.
- Direct contact: If all the other methods aren’t working for you (for whatever reason), it never hurts to go old school and do the direct contact thing. A simple email (no attachments, not overloaded with details) will go a long way to getting the ball rolling.
Great Minds Think Alike
You’ll need to focus your search on investors that understand your specific business. So you’ll have to narrow your search to VCs that successfully invest in companies in your industry. In addition, look to see what stage (Seed, Series A, etc.) the firm specializes in. Dig a little deeper and look for specific items — its history with past deals, geographic location (if that’s an issue) and narrow your list to somewhere around 20 – 30 firms. Once you’ve made your final list, it’s time to instigate contact.
Introducing Your Business
This is where your networking skills come in handy. Take a look at your network — do any of your prospects have direct (or indirect) contact with a VC? Are you involved with any board member, colleague or LinkedIn connection who can help you get your foot in the door? Be prepared with essential questions before your first meeting with the investor. The “warm” introduction usually is the best if it’s at all possible, but if not, a “cold” connection (contacting a VC who you have no “in” with) never is a bad idea.
Using a VDR in Your Investment Rounds
One of the most important tools for any company involved in any round of the investment process is a virtual data room (VDR). As a critical component of any transaction, a VDR is an online location where all the players involved in the funding deal can store, search, share and edit (with the appropriate credentials, of course) the documents involved with the deal. Using a data room during your funding rounds provides a user-friendly interface, security and data management tools to help the entire process to flow smoother, at least in the area of sharing confidential information with others both within and outside of your organization.
How CapLinked Is Vital for the Process
CapLinked, a leader in the VDR space, provides users in multiple industries with secure virtual data rooms for all types of transactions, including funding, where security, document integrity and confidentiality are paramount. CapLinked VDRs contain cutting-edge features, which include document and version management, high-level admin controls, 24/7 customer service, encryption and multiple layers of security. In addition, it features a user-friendly interface that is compatible with virtually every OS, and, because of that, it gives users the ability to upload and download documents from any type of computer, tablet or smartphone — from anywhere on the planet that is internet-enabled. Enrolll in a free trial that will show you exactly how CapLinked can help streamline your funding process.
Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer products industries.