How to Raise Venture Capital

venture capital

Raising venture capital isn’t the easiest thing to do. With my first software company, Crazy Egg, my business partner and I spent 6 months doing a dog and pony show in front of 21 venture capitalists and none of them were willing to give us money.

We thought we had everything venture capitalists (VCs) wanted. We had a unique product that solved a pain in the market, there was a lot of good buzz about us in the blogosphere, our user base was growing, and we even had paying clients. To take it one step further, people talked about how our product was so good that Google should buy it. And on top of that I had well-established relationships with VCs such as Guy Kawasaki.

So why didn’t Crazy Egg get funded? Crazy Egg wasn’t an idea that had the potential to be sold for anywhere near 100 million dollars. The business model that VCs have is that they convince rich people to invest in them and they take that money and invest it into a handful of companies. The majority of those companies will fail, but a few will end up selling for large sums such as 100 million dollars. The money that they make from the companies that sell usually covers their loses and the money they owe their investors.

Now if you failed at raising money, like I did, it doesn’t mean you should quit. Just because someone tells you “NO” the first time, it doesn’t mean they won’t say “YES“ in the future. For example one of the venture capital firms I pitched Crazy Egg to was True Ventures. Although True Ventures said no to Crazy Egg, 6 months ago they invested in a company I co-founded called KISSmetrics.

The Venture World

Before you go out and start raising money, there are a few things you need to know:

  1. Venture capitalists don’t want to hear about ideas; they want to see your company launched before you ask them for money. If you weren’t willing to put the time and money into launching a beta version of your company, why would they want to give you money?
  2. VCs aren’t the smartest people out there, but it doesn’t mean they are dumb either. Don’t blow smoke in front of their face or else they will call you out on your bullshit. Be honest every time they ask you question and if you don’t know the answer, it’s OK to say that you don’t know.
  3. There are 3 different types of capital you can get: early stage, expansion capital, and buyout capital. Before you start your dog and pony show, make sure you know what type of capital you are going after.
  4. If you are trying to raise a few hundred thousand dollars, you are better off pitching angel investors. Most VCs tend to shy away from investing small amounts of capital.
  5. Business plans are bullshit. You may think they are great but I haven’t seen a VC ever read a business plan or fund a company based off of one. I could be naive, but I think they would rather have you spend your time on launching your company compared to writing a 30-page document.
  6. People are scared to give money to people they don’t know. If you don’t know any investors you better start getting to know them. You can easily do this by reading and commenting on their blog or by striking up an email conversation with them. Or you could ask your friend or lawyer if they can introduce you to a VC (good lawyers know a ton of VCs).
  7. In most cases VCs are using other rich people’s money to invest in companies and not their own. This means that they have a boss. So if you hear horror stories about companies getting screwed by them, it isn’t the VC who is being mean. They have to cover their ass as well.
  8. Make sure a 5 year old can understand your business model. If you can get a 5 year old to understand what you are doing, then a VC will understand what you are doing.
  9. There are 2 types of investors out there, the first can just provide you with money and second can provide you money and knowledge. The second type of investor is called a strategic investor; ideally you should only take money from a strategic investor.
  10. If you are looking to raise a few million dollars or more, you usually won’t get it all from one venture capital firm. You will have to get money from multiple VCs, but the good news is they believe in the herd mentality. This means that if one VC sees that another VC is interested in giving you money, then they too are naturally interested in giving you money.

The Deck

Now that you understand how the world of venture capital works, you will need to create a power point presentation (also known as a “deck”) that you can use to pitch VCs. Here is an example of a good deck:

When you’re creating your deck, make sure it includes the following:

  • Mission statement – a simple sentence that explains what your company is about and what you are going to do.
  • Team – you need more than a one-person team if you want money. If you can’t convince people to join your company before you get venture capital, you won’t be able to convince a VC to give you money.
  • The problem – creating another me too company won’t do any good. Make sure there is a pain your business can solve that others have not.
  • The solution – don’t just go into how you are going to solve the problem you talked about in the previous slide, show it. You should include some screenshots of your product, even if they are rough.
  • Competition – even if you don’t think you have competitors, you do. List out your closest competitors and talk about how your solution is different.
  • Market size – go into detail on how big the problem is. How many people are experiencing this problem? How are you going to go after those people?
  • Business model – you have to make money sooner or later. If you don’t have a strong sense of direction on how you will make money, list out the possibilities.
  • Marketing – how are you going to go to market? You need a clear plan of act. Make sure you don’t say something stupid like you are going to get on TechCrunch and thousands of people will then come to your website. TechCrunch is a great site, but that isn’t a marketing plan.
  • Financing – how much money do you need and why? Unexpected things usually happen, so make sure the number is large enough to account for them.
  • Milestones – if someone gives you money they will want to know when they will see something more tangible.

After your presentation is over, you are going to get bombarded with questions. There is no way you can be prepared for all of the questions. Just be honest and have faith in yourself. If you know your business like the back of your hand, you shouldn’t have any problems. The most common questions I have been asked are:

  1. Why do you want to raise money?
  2. Why should I give you money?
  3. What makes your product or service different than your competitors?
  4. What is stopping your competitors from doing what you are proposing?
  5. What would you do if you weren’t able to raise any money?

Conclusion

Guy Kawasaki once said that the probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. No offense to Guy, but I think your odds are much higher than that. It doesn’t matter what skin color, age, or education you have. All sorts of people have raised money and you can too.

From what I can tell the entrepreneurs that are the most successful in raising money tend to be scrappy, quick learners, cheap when they need to be, and most importantly know how to execute.

Best of luck!

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Trackbacks

  1. How To Get Venture Capitol For Your Dream | Because I Have A Dream
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Comments

  1. I like the point you make of a 5 year old being able to understand your business model- very true!

    Great insight overall on raising VC also

    • The 5 year old part is really important. This is one of the main reasons people fail at raising money.

      • Point noted. Many sites or program comes and go. I hope the real owners will practice this method to get more money and support the program.

      • i disagree, i dont think a 5 year old is going to understand an internet product/service but i do see the point your trying to put across

        • It is just an expression. All it means is to make sure your pitch is simple and to the point. Don’t use tons of technological jargon.

          • You’d be amazed what a 5yo can understand! I’ve a 3 yo and I admit it’s hard explaining production of photonic matter, electromagnetic wave propagation, particle-wave duality (“how does the sun make us hot”) but it’s possible on some level. If your business is harder than Particle Physics / Quantum Mechanics then I’ll let you off!

            Anyhow, I don’t think it’s /just/ an expression. If you’re pitching an internet product/service then you should be able to abstract it for a non-geek, if you can’t then your market is probably pretty limited and you have to consider then who the people who are buying your high-value service are. They’ve got to be people without a PHB to convince (after all if you can’t describe the business basically then how will your potential customers?).

            No, I have no idea what I’m talking about – but on the internet no-one knows you’re a highland cow, or something.

        • I think the best strategy for reasonable VC partnership is to try and demonstrate the proven model – not just a theory. You can do it on an as small of a scale as possible. Once that is done you will essentially be asking money to replicate an already successful project instead asking money to test whether your idea is going to work

    • You gotta have a business model — without it you are sunk!

  2. Really great walkthrough with great insight Neil!

    A lot of businesses surprise me in that they don’t know much about raising funds to support their businesses. What’s even more surprising is a lot of businesses don’t know IF they need funding, let alone how much they should get.

    Entrepreneurs should remember that venturing funding isn’t for everyone; VC funding works best for businesses that want to grow A LOT in a short amount of time.

  3. one of the top posts I have seen on this topic.

    so many people think that having an idea alone is worth money but little do they know the sweat you need to pour before having a person with $$ willing to hear your idea out.

    its great to see some reality shed on this topic and how to better prepare before going this route. I have seen some funny proposals and dreams of people with just ideas look for a free ride/buyout.

    From experience, your detailed post is virtually a carbon copy of what the cycle is like.

    great post!

  4. Quick question — do any VC’s do investments for capped non-equity payouts — like 10% of profits up to $100 million paid out total for a $500,000 seed round? I figure if they get $100 million or so, that’s still a huuuuuge success for them, even if it is capped.

    Does Founder’s Co-Op? I’m totally planning to ask Guy and others this in SF in 3 weeks. I’ve only heard of equity VC rounds for equity, and being a public C-Corp company with double-taxes, quarterly profit pressures, non-stop investor roadshows and annual reports is not something I would want to be stuck with forever for taking a relatively small amount of funding early on.

  5. Neil-

    This should be required reading by anyone looking to get VC funding. I think it outlines the realities of going this route, and is a good example of just how much you must persevere to actually secure VC funding.

    I think what happens is most startups pitch to a handful of VC’s and get shot down…they then say “Yep, told you nobody really gets VC funding”. When the reality is they probably just quit pitching too soon.

    Anyway, good stuff as usual.
    Matt

    • Thanks Matt!

      Yea, most entreprenuers just give up after a while instead of learning from their experiences. All you have to do is keep adjusting your pitch until you get a VC on board.

  6. I’m currently funding my own Startup to get the project into Alpha/Beta stage, and then will likely to be searching for VC post launch. So this is very timely and informative post (yet again) for me and the soon-to-be-position I will find myself in. Will definitely add this to the to-list of self-education. Thanks Neil!

    :)

    @frankinguyuen and @shaph

  7. Great stuff as usual Neil. It took us a couple of months and talking to 4-5 investors before our funding and we will need more in the near future so we can hire more people. We are still in the we-dont-need-that-much-money-so-we-dont-need-to-talk-to-VCs-yet phase.

    You going to SXSW?

  8. Hey Neil,

    I appreciate your openness. You are the man who can really do something and showing the way to others. Good going man!

    • Thanks! Let me know if you ever need any help raising money.

      • Aizaz ahmed :

        Mr. niel patel, i m student from pakistan want to raise money due to some financial crises, through a effective pathway but unfortunately i could not find the appropriate channel. can you just help me out by providing me your ideas please ???

  9. I like that you are retired Neil, your posts have been great.

  10. This is a best articles till date n very informative atleast for me…. I’ll definitely add this to the list of self-education. Thanks Neil :)
    And Best of luck with your startup….

  11. Hi Neil!

    I can relate to this. I was partner in a company before that’s now a statistic. When we asked a VC for capital we bombed because we made all the mistakes VCs do not want to see. I was a industrial partner so that was an expensive lesson well learned.

    All the Best!

    Regards,

    Erwin Chua
    http://winning2win.com

  12. Coming from someone who failed to raise venture capital the first time until he LEARNED what needed to be learned, this is topnotch information you have provided, Neil. I like that you said a No the first time doesn’t mean it should continue to be a No other times. This also applies to trying to get a loan from your bank.

    When your banker say NO the first time, a smart thing to do is to politely ask why they said NO. Lots of them will tell you. Simply make the corrections and approach the next banker. If same happens, ask why and make corrections AGAIN. Eventually you will fix up all the loose ends and be able to get the funding you need. From experience I know this is very powerful. So, you are right all the way, Neil. Once again, thanks for sharing this. Topnotch stuff, I tell you.

  13. A lot of us will start saying no at first. But, one one of our friend recommend it, we would have try it. If we see it is good, then we will start creating buzz to all of our friends. This is the way of customers.

  14. Great post. Very well written, everything I would added is in there. I have read a ton on that subject and you have hit all the main points.
    18 slides might be a little long, but you do cover the main spots that need covered, and you didn’t use 5 point font to get all the info on there.
    As soon as I started reading I was thinking about number 10 – the herd mentality. Get one or two hooked and suddenly a bunch of others start coming to the bar-b-que.

  15. I have so far stayed far away from VCs. The time may yet come when I will need to seek out some. Thank you for these pointers.

    • If you don’t need venture capital, more power to you. I always say, it is best to use your own money.

      • I agree with you, Neil. It’s always best to use your own money. That gives you much more power at the negotiating table in the future, :) But it can be so hard to come up with so much money by oneself. That’s why I’d say – if you can get some JV money, why not? :)

        • The thing is if you want to go out to a night club every night, you will figure out how to get money to buy drinks and pay for the entrance fee.

          When it comes to business a lot of people have excuses that they don’t have money to start one. If you really want to start one, you will figure out how to get money.

          You always figure out how to get money for stuff you really want to do.

          • Ha ha ha – about the CREATIVITY to look for money for clubbing but lack of creativity to look for money for business. That’s true, “If you really want to start one, you will figure out how to get money.”

            • That is how it has always been. It doesn’t matter if you are young or old. You can always figure out how to get money if you really want to.

          • this is a really good point, everyday someone is complaining about not having money to start their own buisiness or buy a better car etc, but at the same time theyre at the pub drowning pints as if they’re free

      • You would! I wish that I had enough to do all the things that I would like to without giving away equity to some VC!

  16. nice post neil, what exactly are you doing with kiss metrics anyway??

    hows crazy egg going? i thought you would have been bought out by now for a few million

  17. You’re on a roll Neil, great post. Two topics:

    1) If you are considering VC funding or think you will some day, visiting these site often will help you stay current on what types of products and solutions are winning VC dollars :

    http://venturebeat.com -and- http://techcrunch.com
    * Neil mentioned TechCrunch

    2) You will be way ahead and greatly improve, not only your chances of winning funding, but achieving sustainable success if you begin with a researched understanding of your customer’s “willingness to pay” (which gives you key insight into what they value).

    I highly recommend you don’t plan on the “free” approach and figure out monetization later. AOK with offering a limited free trial (e.g. – 15day, 30days, 90days) . . . but do not offer a flat out free option.

    If you ever have questions around pricing or optimizing your ability to create and grow paying customers, let me know. Take care.

  18. I love this post Neil. I am working on a post now and am going to reference this one. Great stuff. I have been really working hard to learn as much about this subject as possible. This was right on, to the point, and just great info. I mean, fabulous.

    I have one question… Is it better to go after VC money or small business grants/loans when in just launching? Then go after VC money once you want to go to the next step…And does this apply to both online and offline?

    Thank you,

    Kenney

  19. Thank you Neil for sharing this very useful knowledge. Our friend Jason Nazar also had these presentations that are very helpful in the context of this post: Ten Lessons for StartUps from Superheroes and
    10 Mistakes before starting a business.

  20. I am surprised you couldnt get funding for crazy egg. i seen companies with lesser products get funding. I am a budding entrepreneur but my fear with taking vc money is that they will fund you then take over your company then will boot you out.

  21. Hi Neil,

    I am looking to develop new technology through a start up company and the patent process for starters can be very costly. Do you have any advice for how to go about getting venture capital for a project where there is unprotected intellectual property? I am an idea driven person and am seeking ways to capitalize on my innovations and other creatives. I am enjoying your blog thanks for sharing!

  22. well , it take me 30 minutes to read and understand your post but i got it ( just because my English not because your post is hard to understand ).
    i like the points you refer to in ( types of capital ) this was the first time i heard about it . also the point that much here didn’t noticed when you said “Most VCs tend to shy away from investing small amounts of capital. ” I’m totally agree with you but i wonder why they shy from them ability ???
    but i found that it is hard to give someone my money if i don’t trust in him much specially if the amount is big , do you think that lawyer able to persuade me or the investors to give the money to people they don’t know ( just the lawyer who know ) ?? but i like the blog idea ;)

    for point 10 i think strategic investor is the best as you say .
    thanks and sorry if my English is bad

  23. I love love love this post – tons of info. I cant say that im going to run around chasing venture capital. Ok, well maybe, but no time soon lol.

    “Business plans are bullshit” – amen brother.

  24. WOW man, this has been one of your greatest posts yet. Very very informative!!

    Great job on being so detailed. From a person who knows little about VC’s, this has vastly improved my knowledge

    AJ Kumar

  25. I liked the mentioned above blogs on venture capital,they are really worth reading and using.

  26. Neil. Excellent post. You always find a way to cut through the clutter and tell it like it is in an inspirational yet super honest way. That’s what brought you success in the first place. Cutting through it all, making a decision and executing.

    Thank you.

  27. Fantastic post – love that slide show as well.

    Two points to consider adding (some of which are touched upon above):

    1. Know the Industry cold – i.e. how large is the space? how fast is it growing? what is the history of this space? what percentage of the space can you capture and how?

    2. Have a Revenue Model – be able to start generating revenue from day 1

    • I think the number 1 point goes into the market size point.

      As for the number 2 point, it goes under business model. You don’t have to be making money from day 1, but it would be nice if you were.

  28. Nice article, have you ever heard of the “Dragon’s Den” it is a BBC show that is really interesting. It is about these entrepreneurs that what money and they try to get a panel of 5 or so rich people to invest. It is a really good show to watch. It is like the American Idol for the business person.

    • I haven’t. BBC isn’t too popular in the U.S., but I will see if the show is available on cable TV.

    • Hmmmm, that will be interesting to watch. I like watching shows like this that improve one’s business sense rather than just for entertainment purposes. That’s why I absolutely love The Apprentice. One should get entertained, edutained and get businesstained, if you get what I mean :D

      • The Apprentice is a pretty good show, but I don’t think it can teach you much. They don’t show all of the small details that help them succeed or fail.

      • I never really understood the point of that show, even if you when what kind of respect will you get from the other employees, that didn’t need to be on a game/reality tv show to get the job. The only time I watched the apprentice was when I was bored flipping thru channel and saw paintball, turns out it was this show and I think trump was shooting at the contestants, I laughed and when that scene stopped so did my watching it.

  29. I think that the real task of the show is to gain more popularity of the channel and TVperson ,to raise the rates of both but not the task the university has to educate, to train and etc.

    • It is. The TV networks only care about ratings because high ratings means more money. If they taught people more about business on the Apprentice, I would have watched it. Most of America may have not, but I find that more valuable.

  30. Nice. Very helpful, I always like your more “technical” articles.

    Yeah, the “standing in the bottom of a pool on a summer day” is too pessimistic. I wonder if we could pay Guy on a summers day to be in a pool at the top of the empire state building, and to poke a lightning rod out of the pool?

    Point being, even if the chances are remote, you can always improve your odds by knowing what you’re doing.

  31. What for is that Guy standing at the top of the empire state building with his rod,I wonder? Does he really want to catch some fishes and sell them at the market close by.Or is it cool to stand at the top?

  32. Good post, just want to add my story. Its really hard to tell some one about your product and ask for capital. I believe many genius people in market those fail just because of capital. In internet market where your buyer is globally and if you market good, you can get big $ but now one near you believe on that much profit.

    • No one likes giving money to others. It is a very very very risky business.

      • Ive personally come up with many many million dollar ideas, but most of the time dont pursue them myself, let alone seek to convince others.
        Not out of laziness or ignorance, just the amount of effort compared to a competing idea (ive found some of the simplest/ best ideas are based around mass collaboration/cooperation, which in itself is difficult),
        also the enjoyability plays a large part of my selection process.

        • Ideas are a dime a dozen, it is all about execution.

          • Can we quote you on that?

            • Meaning it’s easy to come up with an idea but to actually make it happen takes skill and know how.

              Unless you want to get corporate and get into patents and copyrights etc…

              ● Look at YouTube… Nothing Revolutionary. They just took something that already exhisted and made a site for it that was well branded.
              ● Same with Google, google did NOT invent search they refined it. Their execution of the idea made them popular.
              ● Same with Apple, they didn’t invent the MP3 player they just branded it and designed it in such a way that was appealing to the masses more so than the competition.

              â–ˆ Kris Tian â–ˆ

  33. Great points!

    It’s also important to realize that not all venture capitalists are vulture capitalists. But you still have to do your own due diligence. And try not to come across as too desperate.

  34. Neil,

    Jeff Tirey of Mongoose Metrics turned me on to your blog. I’ve spent much of my day reading your outstanding stuff.

    What are your thoughts on how the current economy is affecting Angel Investors? Everyone I speak with tells me “now is not the time.”

    I imagine many Angels would want to fund good startups now, because there is so much opportunity in the market now: talent, acquisitions, etc.

    Thanks, Dan

  35. I tried to present to David Siegel of West Gate Resorts (met him once, nice guy) but this was right before the whole recession thing REALLY set in. So I kept getting a no-go for a presentation.

    Screw that! I know where he works so I’m going to get an envelope ready with my business stats and everything and wait for him in the parking lot. I WILL present to him weather he likes it or not because…I don’t know about you guys but… I need to get things moving.

    â–ˆ Kris Tian â–ˆ

  36. Wow Neil, you really have VC nailed down. I have never actually looked into VC before, or attempted a business within the scope that would be in need, but this is a great blueprint.

    BTW: I am still laughing from the joke about getting struck by lightening at the bottom of a pool on a sunny day.

  37. You skipped a step when you said “doing a dog and pony show in front of 21 venture capitalists.” It’s like saying “I went to Washington and met with 20 Senators.” How do you do that? I know you need personal introductions to VC’s to get them to listen, so tell your audience how to do THAT as well. “Who do we know that can introduce us to VC’s” is a necessary step, don’t you think?

    That said you have a great site and tremendous knowledge. Can I buy you?

    • I would just contact VCs through their website. Other than that I was getting introductions from my lawyer (any good law firm can get you introductions).

  38. Who was/is your lawyer that got you these introductions to vc’s?

  39. Neil, what would you tell a guy who has a good business plan for making wood pellets for pellet stoves, but has been turned away from all the vc’s he’s contacted because it isn’t high tech enough or the new life saving gizmo?
    My bus. partner and I are getting frustrated because we’ve discovered a great market for this product in an underserved region but nobody will talk to us because it a mature technology. They don’t seem to care that it can make a lot of money!!

    Any ideas?
    Thanks,
    Rich

    • It could be something where you raise money from friends and family. Most VCs don’t invest in ideas like this.

      Maybe you can get a small business loan?

      • We have a bank on board and have apps for all the sba/gov programs we could find. Both of those venues are more than willing to help. We still need an investor to help for about 3.5m.

        Who do you think would take an interest in this venture? There is considerable business to be done in our location. Other than vc’s, banks or loans, where do you go to look for money? I know a few wealthy people, but they aren’t interested (they have never heard of wood pellets).

        Thank, Rich

        • That is a tough one. Sadly I don’t have an answer on which investor would give you that kind of money.

          I would just go with whoever is willing to write a check on decent terms.

    • How do you know that it will make a lot of money, you are assuming my friend!

      Assumption can be your worst enemy.

      Maybe you should review your pitch!

      Also consider how many people have hit the VC up for money before you. What makes your idea better than theirs. Maybe it is Maybe it isn’t

      Try finding VC’s that are interested in clean energy.

  40. Got to bookmark this post, I think that it gives just too much value to let it pass through. I am definitely going to be prepared if I ever get to raise capital. Thanks

  41. Once you understand and are ready to buy into the venture capital model, look your VC in the eyes and ask yourself whether you could picture him or her as a co-founder of the next stage of your business. If the answer is yes, then go build your company together!

  42. do you think, is it hard to start a business that would be good? it seem i am not too smart to start to make an business.i want to know more about internet first, and then i want to raise money so i can start to make a business in the future.thank you for this post

  43. Well if I were to be starting a business (which i might) I would start of small – raise a bit of my own capital on the net, then aim to expand that with profits – but there is always that risk factor holding me back

    • I like the concept of using your own money. The only problem is that some business ideas require a lot of capital. For example you can’t create Google without taking someone elses money.

    • First of all, thanks for the great post Neil! It’s always nice to read this from someone who has experienced it first-hand. I will definitely be back.

      @Best Deals, I completely understand where you’re coming from in regard to risk. I always like to keep the following in mind…

      “Without risk, there is no progress.”

      That quote alone is enough to keep me pushing forward, and I think it makes a world of difference. After all, can you think of where our world would be without those willing to take a risk?

  44. I have been fortunate enough to grow up knowing a VC. Often I have thought to myself I should go to him for help.
    But after thinking about it, yes he would probably help me cause he loves me and knows me and would like to see me succeed.

    I also know that tons of people hit him up for money all the time. So I told myself I would never ask him to help until I had a solid business plan and the juice to back it up.

    Good Article!

  45. I think getting VC also depends on your industry. For instance I have a blog in the “green” industry and it seems that there is A LOT more capital being thrown around right now per capita than the internet, music, or entertainment industries.

  46. it’s getting harder and harder to get vc. so it’s important that you do your homework before you apply for VC. Otherwise you might wate your time.

    Cheers
    Peter

  47. In recent times, while the popularity of the unsecured personal bank loan has been on the rise, ironically, its supply has tightened. This has resulted in the entry of other types of lending institutions, including those that are web based, which offer low interest rates and superb service. A couple of examples are E-Loan and AmericaOneUnsecured, but i recommend that you investigate other sources as well.

  48. Neil, venture capatalist is a name from the past. Say 10 years ago, see alot less of it today!

  49. Rufman, you are way off base and do not know what you are saying. I know of many VC’s out there and they are not extinct they are just a lot less vocal about their ventures.

  50. Your involvement lists few companies
    * I Has Hot Dog
    * I Can Has Cheezburger
    * Sandlot Games
    * BuddyTV
    * Liquid Planner

    Would be interesting to know how are you involved with them?

  51. A nicely done post, and I could not agree more to the business plan being crappy part. Its far overrated.

  52. mark harrison :

    I have had meetings with a number of VC’s recently, here in London and they are a complete pain in the ass. I have had a much better response from business angels who want to be less hands on (although they also offer you less cash) and I think this is the road I will be going down.

  53. I know marketers like Willie Crawford is good at like finding the right VC partners.

    • A lot of people are. After a while you learn about venture capital like you would learn about anything else. You make mistakes at first, but sooner or later you will get it.

  54. yeah, willie crawford is legendary in this game.

  55. Great write up for a geek like me who didn’t know the V of ‘Venture Capital’.

    Would you mind telling what happens after you land up in a deal with VC? What are the pre-conditions they set while funding you? What’s the revenue share? How profits are divided? I’m not sure if you have already written a separate article on it.

    • It really depends, every VC is different. In most cases they make their profits when you sell a company and go public.

      After you raise money in most cases you continue with your business like you did before you had money. Now you just have a boss to report to.

      • Now you just have a boss to report to
        That’s the only bad part of taking money :)

        ok…what if the company goes bust? How do the VC’s make recovery? or they just move on thinking it was a bad investment?

        • The VC loses their money. It is a numbers game for them. In most cases a few good investments make up for a ton of bad investments.

          Think about it, the investor in Facebook will get a HUGE ROI.

          • Ya. It is probably not as simple as VC loses their money. They will make sure that they get every penny out of the company to recover their loses and then whatever is left might be passed on to you. This includes your software/IP etc.

            They will count it as a bad investment but when you take VC money they make sure that the contract has clauses in place to get recover their money before you get a penny.

  56. I would imagine having a lawyer is a must when going into a VC deal? Also what are some tips to have the confidence to actually approace a VC.

  57. VC also need to make money; they are in the business of earning money for their investment partners right.

  58. Thanks for the great post again Neil. I have a question, I have an idea for a new media company, but I cannot afford to stop running my day job (making websites and online marketing). I know my startup idea could produce millions in revenue, but how can I get a small investment to allow me to focus on it?

    • In this economy it is going to be hard. I would go the route of continuing the work at your job and start the company during your off time.

  59. i disagree, i dont think a 5 year old is going to understand an internet product/service but i do see the point your trying to put across

    • Well you can explain it to a 5year old, maybe not ALL of them, but a good amount can figure it out. We are evolving as humans every second.

  60. Really an informative post for me..I’m a startup aspirant..Learning the real things about fundings and VCs here..Please continue writing posts on this topic and Neil,I would like to see a post from you on How to promote our startup with low funds?

    • I’ll definitely start to, so stay tuned for future posts. To promote with low funds, it’s all about networking. Read about it in my archives.

  61. cash loans uk :

    So what was wrong with crazy egg? One would think that companies from people as famous as you would easily attract vc capital.

  62. Some VCs are nothing but criminals. VC funding is the quickest way to lose control of your company. Unless you really need the money, my advice is to avoid vc funding like the plague.

    • You may have just had a terrible experience, not all of them will be this way. Let go of the past and begin to trust instincts for future endeavors.

  63. Luiz Gonzaga :

    Hello Neil! I’ve been following your posts for a while, but this is my first comment.
    This post was great! I was looking for this.

    What do you have to say, or recommend me if my startup is going to be very expensive? It won’t be a tech company, but a place for customers to come (like a restaurant, dancing place, etc). So it’ll need a LOT of investment to buy the place, build it, workers, waiters, structure, computers, sound systems, drinks, foods, etc, etc, etc…

    And… I’ve read the book “Startup” from Jessica Livingston. Got great ideas and motivation from it. But the thing is I’m in Brazil. And the reality here is way too different from US or Canada… We don’t have that much of opportunities here. I’m afraid I won’t receive money from any VC. Brazil don’t give so much attetion to innovations and stuff. I think they won’t pay for a thing they don’t know for sure that will pay them back…

    What do you recommend me?
    Thanks and until next time!

    • Well just because they’re aren’t as many opportunities, doesn’t mean you should shy away from the idea. Life’s just a lot harder for you, but don’t give up. 90% of restaurants and what not fail, but the people who can hustle and bang it out for a couple years are the ones who make the big bucks.

  64. Brilliant article Neil.

    I’ve an idea about a social travel site and I know we can do a great job on search engines but really not able to find people to pitch to. I’ve used every forum and every contact I had. What am I lacking? What would you be interested in Neil?

  65. Neil,

    This is a fantastic article. My company is in the second stage phase. We need expansion capital and would like to partner with strategic angel investors. Any recommendations on how to find them? Should I look in my city, great metro, region, or nationally? Any tips on how to locate them would be great.

    Cheers,
    Tommy

    • All of the above. Go to networking events and where ever you can go.

    • Tommy
      I just want to add a comment to finding “strategic angel investors” investors for your company. Like Neil said, you need to network. I am a new commer to North Atlanta and I am interested in startup of my own. Althouogh not started. But when I searched for terms like Atlanta startups, Atlanta venture, atlanta investors, I was able to find a lot of results. Some of these have blogs, periodic networking events, local radio shows (and these are not get rich quick real estate stuff). I attended a networking of entrepreneurs meeting once and I plan to attend more.
      Another way is to even look on faccebook for the same search terms. And yet anothe way is to use meetup.com for yoour local area and search for entrepreneur or investor groups, you.d be surprised at what you find.
      All the best
      Tokesan

      • Well great, that’s exactly what you should be doing. The more and more exposure you can get out there, the easier it will be for you to make it big or at least go on the right track.

  66. neil I live in indonesia, do you think us venture capital would beinterested to build business deal with me ?

  67. Next step is writing down how not to get screwed by Venture Capitalists once we get approved!

  68. Thanks a lot for your sharing, Neil.

    I almost finish a web site, and I showed it to a patent lawyer. He gave a comment “Magic”. When I want him to file a patent protection, he said I need to get VC invest first, then to file patent just before the web goes to public. Is it correct? I think that it is dangerous to show the whole web to VCs if there is not any intelligent protection. How do you think? Thanks.

  69. This is a best articles till date n very informative atleast for me…. I’ll definitely add this to the list of self-education.

  70. WOW man, this has been one of your greatest posts yet. Very very informative!!

  71. its true most people looking for Venture Capital are really looking for Angel funding to get their company going. Really if you can afford not to get venture funding you may be better off for it in the long run.

  72. This was a great post on VC pitching. People often think that VC pitching is extremely competitive and that they must pull out all the stops for a complex presentation. It’s great to hear just the opposite.

    • Yes, it’s different because I’ve seen it in play. Most people who talk about it are just talking about “textbook” ways…. which usually isn’t how it is.

  73. Neil, you are amazing. Got the link to this post from a techcrunch marketing post, and spent a few hours reading thru all, including all 43 pages of comments. In rare cases did I spent so much time on just one post. This is because you wrote with a kind and knowledgeable mind and you have a great community of followers. We will be consulting you on how to bring our novel suresome.com to next level make more people benefit from our web technology, which our patent lawyers viewed as one of the best they’ve ever seen.

  74. Timing the raise of your first venture round is an important consideration. I have heard some argue that if you try to raise VC too early, you can leave investors with a bad taste in their mouths and an unwillingness to consider your company again in the future. If you wait too long to start your raise, your company could go bankrupt, you may need to make salary cuts that cause you to lose key employees or your competitors may have an improved chance to grab market share before you.

  75. Hi. I wanted to thank you for the excellent details you have posted on your website. I will definitelycome back to check it out again and have subscribedto your RSS feed. Have a fantastic day.

  76. Hi. I wanted to thank you for the excellent information you’ve posted on your website. I will definitelycome back to check it out once more and have subscribedto your RSS feed. Have a fantastic day.

  77. Greetings Neil!

    Interesting! Your description of the VC business model is much like that of the big pharmaceutical company in search of their next blockbuster prescription drug.

    Great post!

  78. hi neil,

    Thank you for the excellent information you’ve posted on your website i am just a starter in these area but got a lot of informatiom which will help me a lot

    regards
    Appacha

  79. Great great post, really helpful for someone like me who is new to raising VC :)

    -M

  80. Isn’t it pretty hard to get venture capital if you are a nobody?

    • Yeah, it’s hard to get your foot in the door. It’s all a process, but with hard work and a great product it can happen.

  81. Steve Sarmiento :

    Great information here Neil, I’d love to speak with you about it further, as i’m in the process of starting my start up.

    any way I could shoot you an email?

    -steve

  82. So nothing of what you said is real..Nice slidedeck…btw it won’t get you penny 1 from a VC, because the deck doesnt matter.

    Lolol….show us you can pitch someting other than a web site or a social networking app and then you are real.

    JOKE.

  83. Great post Neil. So should some one go after Angels if they have dont have product or company launched yet.. Don’t angels have the same questions as VCs do ?

  84. There is no company who wants to hear the idea, they only want to see the work only after tat it will pay you money. Besides that I wanted to say that Neil your ideas are very helpful and the list you have provided above about raising money, helped me a lot.

  85. This is the best information I’ve read about how to raise venture capital. I knew they did not care about business plans although most people think they do. But I will say I wish I read this post about 8 years ago when I was trying to start my own business in purchasing income/rental properties. I had to much wrong information and ended up losing money.

  86. Michael Greff :

    Hey Neil,

    Great article, it has definitely put some things into perspective for me. I wanted to pick your brain a bit about VC. I currently have a service I am developing and would like to know why I would need to get major financing. I look forward to your E-mail.

    Thanks
    Mike

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  88. Hey Neil, I have found your article while searching for some financial articles over the net. After going through your article I could not restrict myself to comment on the post. Thanks mate – for sharing such an informative article with the readers. I want to add here a key point – You should start your business after detailed analysis. You can’t understand your business unless you thoroughly understand business strengths and weaknesses – this is my personal opinion. Anyways – thanks a lot and I have tweeted your article and shared it with my followers – hope they will like it too. Keep it up mate.

  89. Good insight. Helps me a lot to know what state of capital to go for. In the expansion mode.

  90. Hi Neil,

    Great post but I feel that you are being very flippant about the business plan, after all the powerpoint presentation is a lightweight version of a BP in itself. It covers route to market, market size, competition etc. all things that are also included in a business plan.

    Surely you mean that PRESENTING a WRITTEN business plan is unneccesary, not that you shouldn’t have one at all. Otherwise the first question from a VC may well have you flummoxed, and it is only downhill from there.

    It is also important for some people (myself included) to write a BP in order to make the presentation succinct in their own mind. Otherwise I could end up talking for days…

    Cheers for some great posts.

  91. Great insights on how to find VC. I don’t plan on seeking any for the time being but who knows in a future. I will probably be able to raise my compant on my own. Thanks for writing this article.

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  93. There are quite a few grants about if you are looking for some money for your business to take off, but you will have to look around hard to find them

  94. I can’t say that I know another blog owner with this large of a community that replies to every comment.

  95. Hello Neil,

    Great read!

  96. Wow that was unusual. I just wrote an incredibly long comment but after I clicked submit my
    comment didn’t show up. Grrrr… well I’m not writing all that over again.

    Anyways, just wanted to say superb blog!