When pursuing a relationship with venture capital (VC) investors, startup companies often underestimate the preparation required.
NOTE: This article appears in “Venture Michigan,” December 2016
You may have a great idea, you may have gained some serious traction in the market and you may already have some family and friends or angels backing your company, but the work that must be done to ensure your business is well positioned for significant growth should not be taken lightly. If you’ve decided that pursuing venture capital funding is the right path for your start-up, you must be well prepared to survive a rigorous due diligence process.
VCs want to know how scalable your business is and how knowledgeable you are about your space. The reality is that VCs invest in good industries and good people with domain expertise. They want to ensure you understand the market you plan to penetrate and the cost of doing so. The solutions you’re bringing forward are as important as the team you have with you. Having a strong team and an involved board is critical. Attracting a stellar team will go a long way in demonstrating to VCs that your company is ready to be taken to the next level.
The science of success
Even if you think you have it covered, there is a science to attracting VC investors. It takes an effort by the pursuer in the form of dedication, attention to detail and passion. Making hundreds of cold calls and sending unsolicited business plans for consideration to any VC won’t lead to success. It’s important to determine specifically what kind of VC you should be working with and which investor will be a good fit for your company. It’s not just about the funding. It’s about building a successful partnership. Do the homework to identify what kind of VC is going to give you the support you need: access to mentors, to corporate partners and to other growing tech companies in your industry. Dive into their portfolio companies to identify potential conflicts or synergies. Understand the size of the fund and the stage of companies and industries they invest in.
Another element critical to gaining the confidence and support of VC investors is achieving as much exposure as possible. Events like the Accelerate Michigan Innovation Competition and Michigan Capital Growth Symposium are high-exposure events where you can get introduced to good VCs and successful entrepreneurs in Michigan.
Exploring the entrepreneurial ecosystem
Navigating the system and understanding how and when to seek VC funding can be a complicated process. Throughout Michigan, the entrepreneurial ecosystem offers a wide variety of resources for startups in many stages and across most industries. The Michigan Economic Development Corporation (MEDC) supports designated SmartZones across the state, which are geographic areas where technology firms, entrepreneurs and startups can find resources to support their endeavors, such as funding programs, business incubators and accelerators, university collaborations, research opportunities and the like. Whether you need assistance preparing financials, understanding your customer base, knowing how to get a purchase order or gaining earlier access to capital, SmartZones can connect startup companies with the programs and resources they need at any stage.
The pool of resources across Michigan is constantly growing. For example, in 2016, MEDC launched three new funding programs specifically positioned to help early stage companies grow and prepare for the next level: The Angel Capital Development Fund is designed to foster and expand the network of angel investors in Michigan; The First Capital Fund will invest in pre-seed and startup stage competitive edge technologies that require capital in the earliest stages of the commercialization process; The University Early Stage Proof of Concept Fund will assist university projects for the transition from scientific research to applied research to translational research into the commercial market by analyzing the market application, proving out the concept validation, demonstrating technical feasibility and developing a prototype in the preparation for implementation and testing.
MEDC’s partners like the Small Business Development Center, Ann Arbor SPARK, Automation Alley, Start Garden, Michigan Venture Capital Association (MVCA) and others can help you identify the entrepreneurial support resources available to assist you in meeting your needs and objectives. MVCA recently released the Michigan Entrepreneurial & Investment Landscape Guide, which provides detailed information on angel investors, venture capital firms and entrepreneurial support organizations across the state of Michigan. Tapping into as many of the programs, networks and trainings that are available to you as early as possible will help ensure your preparedness in pursuing a VC partner.
As a portfolio manager, Nataliya Stasiw oversees a diverse portfolio of venture capital investments and business acceleration grants under the 21st Century Jobs Fund at Michigan Economic Development Corporation (MEDC). Before joining MEDC in 2014, Stasiw worked at Automation Alley helping early-stage technology companies in southeast Michigan pursue growth and funding opportunities. She holds a bachelor’s degree in international relations and economics from Towson University, Maryland, and has also completed graduate coursework in international management and finance at the University of Maryland.