When one thinks of venture capital, locales like San Francisco and Silicon Valley come to mind. While it’s true that the vast majority of startup investment goes to Bay Area companies, the capital raising market has begun to diversify in recent years and Sacramento is absorbing an increasing share of the market. In 2016, the Sacramento region received north of $150 million of venture capital investment which business leaders think may be an early indication that the burgeoning tech sector is starting to play a more significant role in Sacramento’s economy.
While the regional level of investment is trending positively, there remains a gap between the capital needs of entrepreneurs and capital available from investors. In an effort to close the gap, we’ve laid out a few tips below for startup entrepreneurs to explore:
Know what investors want. Investors are largely looking at three key components when it comes to your company: The quality of the people behind the idea, the idea itself, and an answer to the question, “How will I get my money back?” Most concepts fail to get funding because there’s a great team, but no idea; a good idea, but no team or there isn’t a clear indication of how and when a return will be generated. If you are three-for-three in terms of offering investors what they’re looking for, that also means you’ll have a real business plan with cash flows, specific ROI projections, and a true understanding of your market.
Understand what type of funding is needed. Have a clear financial plan in regards to the amount of money needed from an investor. This will also help to set expectations about what can be achieved by the company and in what time frame – Entrepreneurs just starting out with a partner and a great idea are best off looking for angel funding while those with a fleshed-out business plan and product could be on the road to raising the first venture capital Series A round.
Start networking and be sure to utilize tools available, such as LinkedIn, in that pursuit. Ask yourself, “Who are the angel investors and/or venture capitalists in my startup’s home community?” and figure out h
ow to be introduced to them. In addition, many college or alumni groups have started entrepreneurial groups that are helping startups through mentoring and perhaps offering seed funding. It is crucial to find and build relationships in a network that will provide a personal referral to potential investors.
Research crowdfunding opportunities. Several online resources are now available such as Fundable and AngelList, which have extensive listings of angel investors, including ratings. For project funding, you can also check out crowdfunding sites such as Kickstarter and Indiegogo.
Learn as much as possible about any target investor or investment firm. Investment firms are fundamentally just a group of individuals, so get to know the organization and also the partners themselves. What is their background? What is the success rate for the investor/firm’s prior investments?
The above bullet points are a good starting point when thinking about how to go about raising capital, locally or otherwise. In sum; it pays to know what investors want, understand the type of funding needed, network effectively, research all opportunities, and learn as much as possible about each prospective investor.
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