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The Other Reasons To Raise Money From VCs
This following column was provided by Mark Davis. Mark is the author of Get Venture, a column designed to help entrepreneurs raise venture capital. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC.
I recently attended a networking event with Jeff Stewart, one of the founders of both Mimeo and Monitor110 (two of our DFJ Gotham portfolio companies). Over the course of the event, I heard Jeff offer some advice to a group of younger entrepreneurs. I found one of his points to be very compelling and thought I would share it here.
Jeff argued that trying to raise money from venture capitalists early in the life of the company is a great idea. While he thought securing capital was important, however, the money wasn’t the reason he encouraged the young entrepreneurs to engage in the VC fundraising process. The benefits he cited were as follows:
- Enhance the plan: By pitching to VCs and getting feedback, an entrepreneur receives valuable feedback that helps him refine his business model, marketing strategy and other aspects of his plan.
- Make connections: While VCs don’t make introductions for every entrepreneur that they meet, Jeff argued that the entrepreneurs would likely be connected to important customers, partners and future members of their teams through the investment community.
- Learn how to pitch the company: By pitching early in the life of the company and pitching often, entrepreneurs learn how to sell their companies. From his perspective, selling in this way is not only important in fundraising, but is also critical for making key hires, securing partnerships and literally selling the company when the right buyer comes knocking.
I would agree with Jeff’s assessment that pitching VCs can be valuable for a number of reasons. It’s the same argument I would make for getting on stage at a venture event and pitching or launching your startup at a sizable event — it’s not likely that you’ll walk away with a term sheet or cash, but the practice of getting on stage in front of hundreds of people is valuable.
Of course if you can never raise capital, the other benefits won’t necessarily make up for that fact, but they’re definitely benefits you can gain from going through the exercise.
I would also argue that first-timers who haven’t tried raising money before or pitching VCs should go to local events and practice - I’ve been to numerous DemoCamps and similar events where you can pitch in front of a relatively friendly audience and get practice + constructive advice.
I like all these ideas and immediately think VC visits should be part of every entreprenuers start, even if you have no interest in doing a VC round. (Though you might want to change the post title as none require taking VC money, just meeting with VCs.)
When my company Dogster was doing an Angel round, it was very hip for VCs to feign interest in doing small rounds with lighter terms. In the end none of them were actually ready for the small round (as their models just don’t support it) but I couldn’t say no and pitched to quite a few VCs. We got a ton of great feedback, expansion ideas, connections. Many went on to become regular contacts, or even trusted confidants. It’s not a waste of time for VC either as they are getting insights into what’s unique about your business.
The one caution I’d offer is to not assuming your 4 year plan will come true simply because you’ve done your pitch 20 times and could do the preso in your sleep. Just because they don’t say they don’t agree with your numbers, doesn’t mean they’ll tell you. And just because you’ve memorized numbers in a spread sheet doesn’t mean it’s any more likely that will happen. The only way you can trust your numbers is by proving them yourself.