Applying for Venture Capital Funding? Don’t Make These 5 Mistakes
Last updated on August 11th, 2024 at 07:36 pm
So many startups want to know how to apply for venture capital funding.
For transparency’s sake, I haven’t gotten this type of funding (and don’t plan on it).
So, this isn’t a step by step guide.
But after taking a few VC courses and consuming a lot of content from venture capital firms, these are some mistakes that entrepreneurs are making when they pursue venture capital to fund their startup:
How NOT to apply for venture capital funding
1. You’re trying to get VC funding for your startup
No, this isn’t a typo.
One of the largest and most detrimental mistakes that some founders make is spending several months to several years trying to get a venture capital firm to invest in them.
And the main reason is that this type of funding is not useful for most businesses.
VCs are interested in high-growth and scalable companies that have the potential to reach billions of dollars.
In other words, VCs want a billion dollar exit for their portfolio companies, or as close to that as possible.
A lot of businesses, especially restaurant and food businesses, usually aren’t scalable enough for VCs.
However, it’s not impossible for companies in the food industry to become VC-funded.
But you need to do your research to understand if this type of money makes sense for your company and how becoming venture-backed will help you reach your business goals.
Otherwise, you can spend that valuable time, energy and money on becoming profitable.
2. You don’t know what your business needs besides money
Yes, VCs provide capital, but they are often well-connected and can support you and your team in a lot of different ways.
They can help you find and hire freelancers, consultants and employees.
VCs and their staff can introduce you to other investors or even co founders.
And/or they can connect you with media & press opportunities and more.
There are a lot of downsides to being a venture-backed company, so you need to utilize the connections and resources available to you.
3. You don’t have a targeted strategy for reaching out and pitching VCs
When I meet founders, they often tell me that they’ve been trying to get in contact with VCs.
I ask questions like:
- How much money are you trying to raise?
- Which firms have you reached out to? Why those firms?
- How did you reach out? Did you fill out a form on their website? Did you get a warm introduction from a mutual connection? What about emailing them directly instead of the generic email listed on their website?
Some of the founders tell me that they cold contact any and every firm they can.
But that’s not a strategy.
And it’s not working.
The same way that every person on the planet isn’t the target audience for your product or service, you don’t need to contact every venture capital firm.
Symphonic Capital, founded by Sydney Thomas, recently posted a YouTube Short about companies cold contacting them when said companies are not aligned with their investment thesis.
What does this mean?
If a firm states on their website that they invest in growth-stage fintech software companies based in the U.S., then why are you reaching out to them about investing in your early-stage food CPG business in the UK?
You’re wasting your time by not having a strategy.
4. There’s nothing compelling or interesting about you, your team or the company to VCs
This sounds mean, but it’s true.
VCs say all the time that they aren’t really investing in a company.
They are investing in the founders & the team.
VCs want to know that YOU are the right team to get things done.
And unfortunately, VCs care about your accolades. For example:
- where you went to school & your degree(s)
- whether or not you went to business school and if so, where?
- companies you’ve worked at
These are some of the indicators used by VCs to determine whether or not you, your co founders and your team are “high performing.”
There’s a reason why a lot of venture-backed companies have founders from Ivy League schools or worked at high-profile consulting firms like Blackstone or McKinsey.
Or led teams at giant tech companies like Meta (Facebook), Airbnb or Netflix.
It’s because that’s what VCs care about.
And if you don’t have what VCs believe is an “impressive background”, it will be that much harder to convince them to invest in you.
5. You don’t have a good answer for “why now?”
Timing is everything.
So, why is this the right time in the market for your company?
How are you going to beat out your competitors, especially the ones who have been in the market longer than you?
And why is it the right time for investors to give you money?
VCs need to feel like this is a massive opportunity that they cannot afford to miss.
So, what’s your hook that will make them feel like they’d be dumb not to give you money?
Need a quick intro to venture capital?
Read 10 Things to Know about Venture Capital for Restaurants & Food Businesses.
