Tomer Tzach spent four years as a venture capitalist, but now he is the CEO of an ecommerce startup business. During his time on both sides of the fence, he has learned a lot. He has instructed VCs on how to work with entrepreneurs. In Venture Beat, he is now instructing entrepreneurs on how to work with VCs.
Enter into the game prepared.
You need to prepare for people with little knowledge of your technology or market who are comfortable telling you that there is no market for your technology.
Develop your own strategy for pitching to VCs.
You should divide perspective VCs according to key parameters such as investment history, industry focus, relevance of portfolio / connections (to your needs), potential conflict of interests and geographic location. Then rank the VCs according to your key criteria.
I’d recommend beginning the VC outreach process with the lower ranked VCs who are also less likely to invest in your company, so that you can get some practice under your belt, and if you make a mistake, it won’t be critical.
Make sure you play your cards right.
if you are negotiating with several VCs, they may try to communicate between themselves in order to consider investing together. Having two VCs that you’re negotiating with join forces can hurt your negotiating power. It is much better to keep both horses competing against each other in the race for as long as you can (term sheet). Divide and conquer. Once they join forces your valuation goes down.
Don’t seek funding when you need it most. Do it when you don’t need it yet.
VCs will sense this pressure, and will use it as leverage in order to extract better deal terms.
Photo by J Rosenfeld