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Ten Ways to Increase Your Chances of Raising Venture Capital

Published: 1/2/2007 3:02:36 PM

(Previous Post - #4 in a series)

#5 - Mitigate Investor Risk

Early stage investors are not risk averse, but they are cautious when evaluating totally unproven technology.

Ways to reduce investor hesitancy include obtaining referenceable customers and having demonstrable technology. If you have a weak management team, try to engage industry leaders as company advisors, so investors feel that there is “adult supervision” in place.

I would go even further to say that it is preferable to get a marquee customer/pilot-ready account. Early stage investors see companies who have pilots ready to start all the time. What will make your company stand out from all the rest is having a well-known company ready to test-drive your product or service.

As far as demonstrable technology goes, the level of development will also determine the valuation of your company in the eyes of investors. The further along you are, the greater the valuation. The more you can develop your product with your own funds, family and friends, etc., the more you’ll reduce technology risk to the investor.

Once you’ve attained the level of development you can before starting your funding search, be honest with investors about your description of the stage your product or service is in. I can’t tell you how many times a company says they have a “beta” version of their product, when they really don’t even have an alpha version - it’s just barely a prototype. That results in a big letdown by the investor and is the wrong way to start. Investors will find out the stage of your widget anyway during due diligence anyway - just be candid up front.

How do you get industry leaders as advisors? If your solution really is a big advancement, they should be able to see it.  Add some stock options and limit their time and effort required and with a little luck you’ll be able to put their name on your PowerPoint deck.

Don Jones

www.VentureDeal.com


 

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Don Jones
CEO, VentureDeal

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