Do You Really Understand Venture Capitalists?

John Colley MBA, MA(Cantab)
A free video tutorial from John Colley MBA, MA(Cantab)
Investment Banking | Business| Entrepreneurship | Finance
4.5 instructor rating • 31 courses • 92,518 students

Lecture description

This lecture helps you to understand what makes a VC tick - what is important to him.

The PDF of the Slide Deck is available to download.

Learn more from the full course

Investment Banking and Finance: Venture Capital Fundraising

Investment Banking and Finance; Venture Capital Fundraising Pitching to Investors Angels, Venture Capital, Crowdfunding

14:21:19 of on-demand video • Updated April 2021

  • Most Focused Udemy Course on Fundraising for Startups from Venture Capital
  • Significantly increase your chances of Fundraising from Venture Capital (and others) taught by an Investment Banker and Entrepreneur with nearly 30 years (29) experience in the markets
  • Develop your understanding of how Venture Capital looks at Business, Finance and Startup Business Strategy and how this influences their investment criteria: make sure you are talking to the right investors
  • How to email Venture Capital and Angel Investors
  • Startup Fundraising from Angels and Venture Capital; find the right investors, how to approach them, how and how to master the art of Investor Pitching
  • How to explain your Business Strategy and Finance requirements through your Business and Financial Plan
  • How to manage the Fundraising Process
  • Going beyond the Pitch Deck, understand Venture Capital Term Sheets and how to negotiate them
  • Discover the potential of Equity Crowdfunding for your business and learn from a CEO how he successfully raised money for his Startup
English [Auto] Do you really understand venture capitalists. Now this is a really really important question because if you can understand what makes a VC tick then you're going to be in a much better position to understand how to pitch to them. So what is really important to them and how do you make sure that what you're offering them takes as many boxes as possible so that when they come to listen to your proposal it's the one they want to invest in. Well it's all well and good starting off with a bit of information about the VC you know their name their address their contact details their Twitter account all that sort of stuff. But that's really just the superficial stuff. And that's actually not what I'm talking about. By all means build a little library of basic contacts but we need to get in a lot deeper than that. And the sorts of things I am talking about is their investment criteria. So what do they characterize their investment companies buy so how do they decide what criteria they use to decide what they're going to invest in. And it's understanding these criteria and understanding whether you fit these criteria which will actually help you to get a relationship going with them because what they're in the game of is finding the stuff that doesn't fit with them really quickly and getting it off their desk so they're freed up to spend their time where they really think they might make an investment. Now the first thing you need to think of is the stage in investment and we're going to go into all of this and a lot more detail in subsequent years but the stage or investment in here I'm talking about whether you're looking for a seed investment whether you're at the Angel stage in which case you probably shouldn't be talking to the VCs unless they are particularly early stage investors and then you get the venture stages which are really sort of a right. ABC rounds. And then you get into the private equity stage where there's a lot more growth for much more established businesses. Now I will go through these in more detail but you need to decide what sort of stage your business is that and therefore does the stage of your business fit the development criteria that the venture capitalist applies. It's worth looking at their existing portfolio and I'm not talking about to get a flavor for the companies but the critical thing when you're looking at their portfolio is have they already invested in a business that competes with yours because if they've already invested in competing technology then one they might want all the information from you but they're just simply going to hand it over to your competitor or to it's very likely that they're going to knock you off the table straight away. So one of the exercises I always conduct is to find the competing companies to find out which companies have got VC investors who those investors are and then eliminate them Red List them from any approaches that you're going to subsequently make. The sectors are much broader and clearly I spend a lot of my time in the tech sector and there are lots of other sectors. But once you get into a sector analysis what becomes really interesting is the next level down and even sometimes the next level down below that the subsector and the sub subsector and finding out exactly which knish your company falls into is really important because the investors won't just invest in tech. They will be focused down into e-commerce or into software as a service or into cybersecurity or whatever it is and you'll need to understand exactly which needs Sherene and you'll need to screen through and make sure that your offering your investment opportunity to investors who are aligned with that geography is also very important. Now there's two sides to this. One is that when investors make an investment typically the earlier stage of investment the closer they want to be to the investor the company. So this means that a San Francisco investor is very unlikely to invest at a very early stage in an East Coast business and vice versa. Even less likely to invest in a European business. There's another side though which is that in many cases funds are restricted in the geographies in which they're allowed to invest. So typically in the U.K. very often the funds are only allowed to invest in U.K. companies. So there's not much point in showing them a U.S. company. So you need to get your geography right. When you look at that have a look and see where their office locations are because that will also tell you something about where they're looking for invest the companies. So if they've got an office in London in Edinburgh and you're in Cardiff You may not be in the best place to to approach them. Clearly if you go into the into the U.S. and Canada where it's the geography is so much larger than perhaps even being in San Diego instead of San Francisco is enough. At the early stage to put ABC off the fund lifecycle is an important thing to bear in mind because if you approach a VC at the wrong point in their fund lifecycle fund lifecycle they won't have money to invest. Let me explain. Most funds are raised are limited term funds. Normally 10 years and the VCs go out of their way to try to invest at least 80 percent of their fund within the first four years. Then they want those businesses to mature and then they start to exit them to try to make sure they're fully out by the end of the tenure term. They don't always get there but halfway through that they'll typically start looking to raise the next fund. So the funds overlap if they are relatively new firm they need to show some results from their initial investments in order to raise the new fund if they've been around a long time. They can hark back to previous funds but you need to ask them when they raise their last fund. How much of that has they invested to date and therefore ascertain whether they've got enough money to invest in you. Because often even if they are not investing they won't admit it to you. And what they'll say is in a way range tested to see of the opportunity because they like to be in the deal flow. They like to see what's coming up and then maybe just a possibility a year or two down the road then they may. You know it may be opportune to invest in you but that won't help you now and you don't want to waste your time chasing around people who can't actually invest in you at the time you need the investment. Finally I want to talk to you about the process because it's all well and good getting an initial meeting but you really want to try to get a meeting with somebody reasonably senior who will champion your investment opportunity through the firm because they every VC firm doesn't make decisions on this or one by one basis. They have a collective decision making process which is called the investment committee which is where the senior members of the firm sit round the table and discuss the investment opportunity and either agree it or does it or turn it down. So what typically happens is after the first meeting a paper will be written and it'll be put up to the investment committee the first time for scrutiny to screen it to make sure it is something they want to spend more time and effort on then when they've gone through the time and the effort prior to the due diligence they'll put a paper together which is basically an outline of the terms on which they proposed proposing to make an offer and that would have to be agreed by the investment committee and then after they've been through all these huge allegiance prior to signing off on the purchase agreement then they'll have to have another investment committee meeting to approve it. So as you can see it's quite a bureaucratic process. Whatever they tell you about how fast they can move they all have these checks and balances in them and you'll need to set up your approach and your system so that you and your timetable so that you actually cope with that process. So the big question after all that is does the VC that you're approaching fit with what you need and what you want to do. Because if you can take most of those boxes then the chances are that's not the B.S. You should be speaking to. And that is why it's so important that you can understand why venture capitalists before you even pick up the telephone to approach them.