Investors and entrepreneurs started 2022 with optimism, having raised nearly $13 billion in the first quarter—the fifth largest fundraising total on record.
Venture capital has seen a noticeable pullback recently, making it harder for startups to get the funds they need for growth and expansion.
In today’s challenging economic climate, startups should take a clear-eyed approach to negotiating valuations and investors. Ask the right questions and come to the table with set expectations for all parties involved.
What do you bring to the table beyond just capital? How can you help me grow my business and reach new heights? What kind of advice will you provide for navigating through the startup process?
Founders should consider these three questions when engaging potential investors: What value do they offer besides financing, how can they help your business succeed, and what guidance will they provide during the startup journey?
What value can you provide besides money?
It is important to remember that VCs don’t have an endless pot of money — they are at the mercy of their LPs’ liquidity.
VCs have limited funds since their LPs’ availability of liquidity is finite.
Most savvy investors bring more to the table than just financial resources; they offer sector expertise, business acumen and a global reach. Founders should feel comfortable inquiring about an investor’s value-add, particularly asking for introductions and access to their networks.
Introductions facilitated via email and clear handoffs to those with deep, trusted relationships differ greatly. Many investors boast strong contact lists, but a LinkedIn profile can’t capture the full extent of their network or expertise.
Be clear about your commercial goals and push investors to identify individuals or organizations that will meet them. For example, we recently introduced one of our portfolio companies to an $80 billion infrastructure firm for pilots in multiple regions due to strong connections.
Introductions should not only create connections, they should drive real business results.
How secure is your cash?
I’m constantly amazed that so many founders think VCs have huge stockpiles of money waiting to be handed out.
VCs have limited funds and are dependent on the liquidity of their LPs, making it essential to answer three key questions:
