Cool, so you are a founder and you have an amazing product. That is not enough and this definitely does not mean VCs would want even to give you one cent. Now that might sound counterintuitive but there is only one main thing that VCs really care about and that is making money for the investors and partners of the firm.
VCs Won’t Use Your Product
Venture Capital are not the users of your product and therefor you should not sell your product to investors as you would sell to your customers. Venture capital want to make money and to make money they want a product that scales fast, has high margins and has a MARKET.
This means that to be able to sell equity to the firm, you will need to sell them that your product will be successful and give them a high ROI.
VCs look for high ROI because they are investing in high-risk high-reward investments and therefor they know that most of the startups they invest in will go to zero, but in some startups they will achieve incredible returns.
Show Your Worth
Therefor, how can you prove to VCs that you are worth the investment? Show that you did your research. You will need to present documents and sheets that you studied the market your product and fact-backed predictions for potential ROIs.
We advise startups to present:
Market Research: A report that studies the environment and market of the product, competition and their market share and how does the startup plan to breakthrough.
Balance Sheet and Income Statement Predictions: An Excel sheet that predicts the balance sheet and income statement of the startup for the next 3-4 years with notes and comments on where the data was imported (or predicted from).
Pricing/Revenue Strategy Document: The strategy the startup will use to generate revenue. This could include LTV of a customer, advertisement rates on the website or protocol fees. Whatever that is make sure that it is wide and clear and is based on facts and competitor numbers rather than imaginary positive thinking numbers.
Customer Acquisition Strategy Document: Everyone knows that customer acquisition is not cheap, and investors want to know what is the plan you have to acquire customers including the marketing strategy and how much will it cost.
From experience, providing such documents and presenting them to investors increases the chance of funding by VCs exponentially as it shows that the startup has done its research and it increase the confidence for investors that the startup has potential to make them money.
Book of the Week
The book for founders of this week is: The Lean Startup. This will give you a groundbreaking view on how to ship and pivot your product to acquire a strong customer base rather than a circle jerk of development of a product for a year that no one really even wants (or for a market that does not even exist). The book will give you insights on the continuous development and pivot model that helped startups succeed and thrive and will change your conception on how to build and produce in your startup.
Quote of the Week
“Daring ideas are like chessmen moved forward. They may be beaten, but they may start a winning game.” - Johann Wolfgang von Goethe