Archive: 2012 - January
A huge part of any VC financing is simply getting to know you, the entrepreneur and/or your team. Any VC will want to know all about you, your career background, your current personal circumstances, your financial standing and how you came to start your business, what drives you, what makes you happy and why are you doing this venture.
From a VC perspective it is imperative to know this information, it helps build a perspective on the individual and the effect that individual can have on the business.
The VC business is a high risk and potentially high reward business. A key factor for the VC is to de-risk the potential investment as much as possible. Of course this is mainly done through due diligence which is a detailed, time consuming examination of the business correlating what the entrepreneur has stated to be true (known as warrants on a term sheet) but another major contributor to this is the need for trust and familiarity as well as authenticity and honesty.
If you make a 'cold' application then the VC has to build a relationship with you. A 'cold' application can be dramatically enhanced if it comes from a trusted source. If you don't have an intro then you would be advised to reach out and try to illustrate what you are trying to achieve and to come back to the VC when you have achieved it.
There has to be synergy and a total alignment of where the business needs to go, therefore that relationship has to be as strong as possible. If I don't like you, I'm certainly not going to invest in you as we need to work together for a number of years and thorough a lot of ups and downs.
Mark Suster describes this perfectly in his article 'Invest in lines, not dots' that describes a first meeting as a 'dot' and further meetings as more 'dots' but now those 'dots' are joined by lines.
There is never an easy way to say "No".
Most VC's have thousands of applications every year and the percentage that get funding are in the low single figures. All VC's have a screening process which is normally managed by the lower ranked employees in the firm such as Associates and Analysts or even Interns such is the volume, so a "No" answer is all too common.
This can be hard to hear for an entrepreneur who has been building a company around their dreams and we don't take saying "No" lightly but you should have a thick skin and keep going until someone says "Yes".
In any rejection we try to offer some advice but it can take time (of which we all have little enough) to offer an in depth reason of why an application was terminated so the reason may be brief. The other side of this is that the entrepreneur will of course try to argue the points that you have stated of why you will not invest or address those points, but still the answer would likely be 'No'.
For those reasons we are likely to give a neutral response without reference to specifics.
There can be a multitude of reasons why applications are rejected, here is a selection of some and certainly not all the reasons:
1. The fund is committed
2. The fund is almost at the end of its lifecycle
3. Your business may not be in the desired sector or the VC may already have enough exposure in that sector
4. Geography issues. VC's like to be involved in their portfolios and if you are too far away a small firm would have difficulty managing that investment.
5. There may be a 'hung jury' on your application by the voting board.
6. There could be a huge backlog of applications
7. There are key primary reasons wrong with the applicants venture, usually around team, traction, product, growth, revenue model or other.
8. The application is so poor (and has not heeded any application guidelines) it verges on spam and is not even replied to.
8. Your deal can get stuck in the VC's hierarchy between an associate and a partner
In a boutique VC firm like EC1 Capital you are dealing with decision makers directly, so we try to get to a 'No' quickly so you can move on. A lot of VC's will feign interest and keep you holding on in case you manage to raise other funding or some other breakthrough in your venture.
If we want to get back into the deal because of some progress you have made or general interest from the investment community, either we will ask you or you must feel free to reconnect with us letting us know what you have achieved. We think that's a fair deal.
This is our first official blog post as our site launches today, February 9th 2012 and as of today we are actively looking to make seed stage investments of between £25,000 to £200,000 in digital web based companies in and around ‘Tech City’ as well as other parts of London and the UK.
We firmly believe this is the right time to invest in the growing tech scene in the UK (you can see some slides of a 10 min talk we did recently to some young entrepreneurs at London Met University.
You will no doubt bump into us at various events in and around London as we build awareness of our brand during 2012, we hope that due to word of mouth and some strategic investments, PR and sponsorships we will be well known for all the right reasons by the end of 2012.