Do’s and Don’ts of approaching a Venture Capitalist

7th April 2011

Do’s and Don’ts
Presentation at the Annual IntertradeIreland VC Conference – 7th April 2011

1. Do your homework

First impressions count so before approaching a potential investor – make sure that you have done your homework:

• Work out the best types of investors for your company and look for a ‘fit’ with the various VC funds across the island – i.e. sector focus, experience, people, levels of funding offered and ability to follow on etc.
• Get prepared for a succinct initial conversation with the potential VC/s to gauge interest. Do it early before the funding round begins – “Not looking for money now…but I will be” is the best way to approach.
• Build an eco-system of Board advisers/directors, bulk up as appropriate – and an experienced Chairman helps.

2. Think like a VC

In the early stages, VCs will be thinking about common issues – make sure you are thinking about the same things and consider your response:

• What is the value proposition of your venture?
• Can the value proposition be monetised?
• Who is your management team and what are their strengths?
• What is your target market?
• What’s the route to market for your product/service?

3. Do be prepared – business planning

Most VCs will want to know about eight key areas of the business listed below. Make sure the information is relevant and up to date – if its not, you risk losing credibility before you even get started!

• The opportunity
• Management Team
• Products or Service
• Market
• Competitors
• Distribution / reaching end customer
• Financials
• Investment and funding details

4. Remember – what the investor is looking for?

When preparing your business plan and approach, consider what the investor is looking for in terms of market opportunity, product/service, team, business model and financial information. Tom and Colin gave us a steer in terms of what they are looking for in potential investment opportunities:

Market

• Substantial international market opportunity (> €250m).
• Immediate, near-term opportunity
• Do you know your customer- actual of ‘line of sight’?
• Long-term market growth potential
• Is there a need for a new company in the market?
• Market players
• Competitive landscape
• Remember the VC must understand it so you must be able to define and articulate the market opportunity

Product

• What’s the real market demand & cost justification?
• Response to customer need
• Defined customer group & accessibility
• Proprietary technology and reasonable implementation
• Technology risk level, how can we prove feasibility before large investment
• Reasonable adoption curve

Team

Remember you are selling yourself, not your product

Team Quality

• The “best” at what they do
• Realistic roles relative to experience
• Experience as operator of profitable business

Team Completeness

• Positions filled / unfilled (prepared to invest where replacement is key)
• Ability to recruit

Team Chemistry

• Among promoters/management
• With investor(s)

Business Model

• How does company make money?
• What’s the pricing & revenue model
• Sales cycles & distribution model
• Cost to build, maintain, extend
• SCA / Unfair advantage?

Financial Issues

• Existing deal structure
• Amount of money needed
• Amount of time needed by VC executives
• Valuation & terms
• Ability to raise more money
• Exit strategy

5. Bring in the WOW factor

Guy Kawasaki – Silcon Valley VC and one of the Apple employees originally responsible for marketing the Macintosh summed it up as:

• A focused mission – you can sum up your companies business aims and objectives on the back of a business card?
• Big Demand – You’re addressing international markets poised for rapid growth and change. A market with 1bn potential allows for error and time for real margins to develop
• Premium payers– Your target customers will make timely purchase decisions and pay a premium for a unique solution, allowing your company to grow quickly.
• Customers need what you have– your product addresses a clear customer need and is easily understood by your customers.
• Company DNA– Regardless of the fact that a company’s DNA is set in the first 90 days, you are willing to work with the VC without compromises to change that DNA for the better.

About our experts

Tom Shinkwin, Partner, Enterprise Equity

Tom works closely with a number of investee companies in the software and mobile communications areas. Enterprise Equity manage 3 funds currently, and are actively investing from Fund III, a €53m seed and early stage fund with Enterprise Ireland and AIB Bank as limited partners. Tom has over twenty years experience covering banking, property and construction, and the ICT sectors. His expertise includes corporate finance and M&A, as well as working with new start-ups. Tom worked for many years in London and Dublin with Morgan Stanley and Ulster Bank (RBS) Group, as well as in the past with a civil engineering contractor, and is a partner with Strategic Equity Partners. He holds a Bachelor of Commerce degree from UCD, a Masters in Business Administration from Trinity College Dublin, and is a Fellow of the Institute of Bankers in Ireland.

Colin Walsh, Crescent Capital

Colin is the founder and CEO of Crescent Capital, the Belfast based venture capital fund manager which invests in early stage technology businesses. Over the past fifteen years, Crescent has raised two funds and invested over £20m in twenty three different Northern Ireland based companies including Andor, Lagan, APT, Axis 3, Omiino and NiSoft.

Prior to establishing Crescent, Colin was an investment manager with Top Technology Limited, the London-based manager of the Hambros Advanced Technology Trust family of venture funds. He has over twenty years experience in the venture capital industry and has been involved with a number of successful flotations and trade sales.

Colin was until recently Chairman of Trafficmaster plc, a company he helped list on the London Stock exchange in 1994; he currently serves as Chairman of Andor Technology plc the AIM listed manufacturer of scientific cameras and instruments and is a director of Balcas Limited, MailDistiller Limited, NiSoft Limited and Fusion Antibodies Limited.