News of venture capital funding has been splashed across newspapers in recent months. After a record 2015, we’re seeing VCs slow down their funding for UK and US companies. During these ever-changing times, it’s important to sit back and review what’s been happening, and what this means for you and your business. Cold hard facts are undoubtedly useful to seeing what’s been going on in the startup landscape, but ignore the emotional side of business at your peril.
Firstly, the facts. Technology businesses in the UK raised over $3.6bn worth of investment in 2015, which constituted a 70% increase on the previous year. Whilst tech made up the lion’s share of VC funding, a whopping £4bn total of investment was raised last year – up 26% from 2014, according to Pitchbook. Spreadsheets are integral to business, there’s no way around it. However, numbers serve to illustrate the main event: your core idea. Instead of presenting dry spreadsheets to VCs, try putting forward the human aspect of the business – you, your story, your inspirations and the guts behind your idea. This is likely to make you so much more memorable to VCs, capturing their attention on an emotional level.
It’s important to think about what it is that makes investors fund projects. Startups that are backed by VCs tend to be driven by a strong sense of value, because VCs hold a mission to fund founders who are solving industry or market defining problems, often in highly disruptive or distinctive ways.
A success story from last year is Funding Circle. They raised the largest fundraising round last year of a huge $150m, largely with the Russian venture capital firm DST Global. Funding Circle specialises in peer-to-peer technology to connect small businesses and lenders. They presented a product and story that behemoths such as BlackRock wanted to get behind – perhaps because the financial market is crying out for a disruptive influence in the industry so it made for an engaging story and pitch. These venture capital companies (whether huge ones like DST Global or much smaller) all share a common goal; they want to believe in your business, and feel like they’re a part of a shared project.
A recent article in Inc. Magazine outlined the debate perfectly, with two thought leaders weighing up what was better in business: social responsibility or pure capitalism and focusing solely on the bottom line. I was definitely on the side of Adam Lowry, co-founder of Method, who argued that the invisible hand in the free market being all we need to prosper is an antiquated idea and actually harms economic growth. If you’re still a numbers guy, they are also compelling – the article shows research that B Corps (socially conscious enterprises) are more likely to survive than traditional small businesses.
After so much success there has been a slowdown in VC funding. Now’s the time to re-evaluate your strategy – consider the story behind your business to score that all-important funding. I’ve put together four top tips to consider when approaching VC funding, to humanise your brands and make those emotional connections just a bit easier.
It may seem like an obvious tip, but before pursuing investment make sure you do your research. Establish who the key figures involved in the VC firms are, and check their blogs, Twitter and online footprint to get an idea of what they care about. Most companies would do this, but you could go one step further and weave key themes into your story. This will make VCs connect with your brand on a much more personal level.
Secondly, consider the content that you produce. You got into whatever business it is for a reason – make sure you show off your expertise in the best way possible. This includes producing high quality content, making the right connections and putting across the most relevant points-of-view. Remember what it is that VCs care about. Spreadsheets are hardly going to capture their imaginations, so lead with your story. VCs buy into people, guts and vision. So make sure you don’t leave this out of your pitch – it’s the most interesting and engaging aspect of your business.
Your startup story
A good tactic is to share your startup story. There are so many startups out there that it’s difficult to cut through the noise and stand out, but expressing about your unique and interesting origin story can do just this. Documenting your experiences, growing pains, brand and product development, and anything else that’s relevant to your industry will make your business seem more tangible and help people connect to your journey and goals.
Before approaching VC funding, make sure your goals are clear. How do you want to make an impact on customers’ lives? If you’re not entirely sure on what it is you’re contributing, VCs will likely see you as just selling a service or product. You can do so much more than that – build a higher impact brand by showing the world what it is that you are contributing to society.
Of course, finding the right formula for you will take a certain amount of trial and error – I’m not saying you should be pitching for every VC funding opportunity you stumble across. Instead, take some time to work out what suits you best, and pursue fewer opportunities with greater energy to maximise your chances of success.
The landscape of business is changing. VC firms now want to feel like they are a part of your business, so it is up to you to express your ethos and aims in a way that connect with potential investors. You are more likely to get VC funding if those getting involved believe in your business as much as you do – your story is in there, and now is the time to tease it out.
Don’t be perturbed by the slowdown in VC funding – instead use this as an opportunity to really shine. Humanise your business to connect with potential investors and nab that all-important funding. Confidence in the startup community is still strong, and it’s up to you to use this. This is not to say that the numbers aren’t important – of course they are, but ignore the human side of your business at your peril, because that is what can really capture the attention of VCs. A spreadsheet can validate your ideas – but lead with the idea itself, because that is what VCs are most likely to buy into.
Post produced in partnership with Paul Cash, CEO at Rooster Punk.