How to Raise Money from VCs and Investmet Banks

Attended ENET’s Raising Money from VC's and Private Equity
this past week too. Three companies presented: Sole Envie
, a site where you can custom design your own shoes, RedStart Systems
, a speech interface technology, and JumpToGreen
, providing interactive green labeling system for those who want to buy green. Sole Envie and RedStart were looking for money, Jump to Green – for partners. After their short pitches, Dayna Grayson, Principal, North Bridge Venture Partners
, Nia Stefany, Managing Partner, Xnergy.biz
, and Peter van der Meulen, Founder and Chairman, BlueShift™ Technologies
, each gave their take on how to raise money.

Dayna talked about what makes a good pitch for seed funding. Her advice:
1. Always start with the team (not sure I agree – it is better to start with her #2 if you ask me).
2. Then go into your idea/ elevator pitch. An elevator pitch sounds like this: “this service will be for this market, the current alternative is…we are better because…”
3. Next, identify the market pain and what is also known as total addressable market or TAM. TAM is a number that your team needs to arrive at based on the % of the total market you can defensibly get. E.g.: this is a problem in a market that is this big.
4. Go into the solution – share use cases and examples but don’t go overboard with the slides – a couple of slides should do it.
5. Then go into how you are going to make money
6. You also need a slide on the competition
7. And, finally define your go-to-market approach – or what you would do next once you get the seed money.

Nia represented investment banks, which usually get engaged with Series A and B companies, mostly revenue-generating (especially biotech). From her perspective here’s what investors expect:
1. Great management teams – people who will know what to do with the money – people who know how to build a good product, and team with a strong CFO.
2. Skin in the game from the management team – they want to see that the initial round of investing was partially subsidized by the management team.
3. Companies with strong barriers to entry and competitive advantages – companies with defensible patents, customers and relationships.
4. Wise spend – no high salaries, not a lot of money on marketing, with well-defined use of proceeds.
5. Achievable ROI
6. Businesses with strong growth potential and scalability
7. A good CFO
8. And reasonable valuation

Next meeting: Tuesday, May 5, 2009, Investor Guidance on Business Plans
. Hope to see you there.

Scratch
Twitter: @ScratchMM