In September, Prevu, a real-estate technology startup that is disrupting the antiquated homebuying process, closed its $2M Seed funding round led by Corigin Ventures. Getting to this point certainly was filled with ups-and-downs, arranging what we felt were promising meetings only to walk away wondering why we couldn’t secure the venture capital funding we needed.
My cofounder, Thomas Kutzman, and I learned a lot during this process. Fundraising isn’t easy by any means, so I thought it might be helpful to provide some of the takeaways from our experience to help you increase your chances of success.
The first 60 seconds are crucial
Venture capital firms are fielding thousands of meeting requests from startups each year, and VCs only have so much time to give. The first 60 seconds are critical to helping your startup stand out. In this time, you should be able to answer these three questions:
- Who are we and what do we do?
- What value are you providing that others aren’t?
- Why should investors invest in us?
Prior to even walking into a meeting, chances are the VC has already bucketed you into a category and unless you tell them – or show them – how you are different, you will have a hard time securing funding. This happened to us in our early days, where we didn’t communicate our value proposition as well as we could have.
It finally clicked for us when we took a step back and answered those three questions for ourselves. We came to the conclusion that what sets us apart is our ability to be a friend for homebuyers in the early mile while being the expert they need in the last mile when the buying process gets more difficult.
To put it another way, look at your startup as your resume. In our early days, when we struggled to obtain meetings with venture capitalists, we focused more on our own experience and thought that would be enough rather than communicating the company’s unique value proposition in a compelling manner. Only when we shifted our approach did our resume standout. For you, figure out how, why and where your company stands out prior to seeking out investments.
Don’t let the mood in the room throw you off your game
As a general rule of thumb, any potential investor will make you question your business model and leave you feeling like it’s the worst pitch they ever heard. That’s actually a good thing! If you don’t get beaten up, it’s probably more to do with your pitch rather than the business itself.
When you are in front of potential investors, it is your opportunity to alleviate all the concerns they have. You have the ability to answer questions just like they have the freedom to ask you questions. Don’t be afraid to challenge them either.
A more subtle approach to soliciting feedback without appearing confrontational is to ask open-ended questions to see what information you can gather like:
You’ve identified “such-and-such” as a potential problem for us. If you were in our shoes, what would be some of the steps you would take to addressing it?
Are there companies in our industry that you are eyeing? What is it about them that makes them stand out?
If you notice a pattern – i.e. your customer acquisition cost is too high – you need to bring that up proactively to build trust and not appear like you are trying to hide something. By being prepared and transparent, your chances of securing a second meeting greatly improve.
Make sure you are in front of the right audience
We operate in the real estate technology space, so it was important that we selected the right venture capitalists to pitch. The last thing you want to have to do is sell your startup and industry, so it’s best to target those firms who have a familiarity with your industry.
The more familiar VCs are with the space in which you operate, the easier time they will have understanding your business model, allowing you to spend more time on explaining what you do, how you do it and how you stand out, rather than on what you do, where you do it, and who you compete against.
Taking time to understand the backgrounds of the firms you are targeting may take some time, but it is worth it in the end, especially when you secure actual funding.
Data is your best friend
Data is essential to leading you down the right path. If you’ve sent out 20 or so emails to venture capital firms and don’t get a response, you probably have to adjust your approach. It may be as simple as changing the subject line in your email header or more complex like rethinking the buzz words that you have used in the past to define your company.
It’s similar to advertising on social media. If your intended audience wasn’t interacting with your ad, you wouldn’t continue running it for another week or so. You’d likely insert new messaging or reorganize the text to increase your engagement rate. This is the same mentality you need to take when initially reaching out to investors.
Prevu is proof that the time you put in will pay off eventually if you stick with it and adapt as necessary. We sent out plenty of emails that weren’t returned or were ignored. Data from A/B testing helped us reorganize our approach and dramatically increase our percentage of responses. If you keep with it even if you don’t notice immediate dividends, your perseverance will pay off in the long run.