Venture Funding: Due Diligence is Just the Beginning
Two evenings ago, I had the pleasure of being MC for SVASE‘s East Bay Series program, Raising Money from VCs: The Insider’s Perspective. The discussion examined how venture capitalists use the due diligence process and other tools to decide which companies they will fund.
At the end, I asked the VCs on the panel to do some simple arithmetic: Of the companies for which you begin due diligence, which portion ultimately are funded?
The answer for all four VCs: Less than 1%!
Steps for entrepreneurs seeking venture funding:
- Research VC firms to determine which ones (a) invest in your industry, (b) invest in businesses at your stage, and (c) invest the amount that you need.
- Find someone in your network who can introduce you to a partner in each firm that you identified in Step 1. (Unsolicited inquiries from strangers almost certainly will be ignored.)
- At the beginning of the initial meeting, focus on why there is a pressing problem for a defined set of prospective customers, and how your company is uniquely positioned to solve that problem.
- If you are fortunate enough that the VC firm wants to begin due diligence, realize that the odds of your being funded still are less than 1%.
Related post: Investor Due Diligence Should Go Both Ways
Photo credit: Carlos Paes via stock.xchng
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.