5 tips for working with a venture capitalist
Raising finance can be one of the most difficult parts of taking a business to the next level. One of the most important moments in the life of a business can be a meeting with a venture capital firm.
It is important to know what a venture capitalist is looking for in a business, to maximise the chances of getting an investment. The Daily Business Post spoke to Martin Kelly, who is a partner with IBM Venture Capital in Europe, to find out what is important for a company to remember when looking to work with a venture capitalist.
**1. It is about the team**
While you may think the most important aspect of a pitch is the offering, many venture capitalists will be more interested in the team involved than the product.
“Our view is that you can have great technology but if you don't have a great team not much is going to happen with it,” said Kelly. “If I meet somebody who says they are going to do something, I meet them again a month later and figure out if they have done it. We look for the right mixture. Is there really somebody who has commercial experience?”
Aside from anything else, a venture capitalist knows they will be working with a team in close quarters. It is important for them to trust and see potential in the individuals they will be working with.
“You can advise, but at the end of the day the team is the ones driving the car,” said Kelly. “In the best case you are in the back seat hoping they don't crash. There are going to be potholes and problems along the way, can a team respond to that? Are they resilient enough and open enough to say that something isn't working and move on to something different.”
**2. Have some traction**
One of the most important things when dealing with a venture capitalist is to show that you have more than an idea. A venture capitalist will look for some validation of what you want to do, whether that be through an award, some earlier sales or bringing a partner or some employees on board.
“It is relatively easy to come up with an idea and put it on a piece of paper,” said Kelly. “Venture capitalists will look for some type of market validation. They want to see that you are the individuals who are passionate and have the operational skills to get people on board.”
**3. Be careful when asking for money**
While the main focus of meeting with a venture capitalist is getting capital for your business, it is important to remember that you are entering into a partnership rather than looking for a loan.
“When someone comes to me straight away asking for money I get worried,” said Kelly. “It is a fairly opportunistic business. You need to find a person who you want to work with, if you can't get that right there is no point in putting the money in because it is going to be a disaster.”
**4. Find the right venture capitalist and tailor your pitch**
Different venture capitalists specialise in different areas and industries. It is important to identify what type of venture capitalist will best suit your business, as you will be in it with them for the long term.
“It’s not just about the money, it is about someone who is going to be your partner,” said Kelly. “They are not going to be running the business but they will be there beside you. You want to find someone who you think you can work with, who has got experience and networks. It is a personal relationship.”
It also important to understand the role that a venture capitalist plays in their industry, and tailor what you are saying accordingly.
“An entrepreneur should put themselves in the investors’ shoes,” said Kelly. “A lot of people don't understand what the job of a venture capitalist is, that they are managing other people’s money and need to provide a return. It is about risk, most venture capitalists will say of the ten investments they make there are probably five that they will write off and they are hoping to get one or two that will return by ten.”
**5. Don't be afraid to dream a little bigger**
Venture capital is a high risk endeavour and thus venture capitalists will look for potentially high returns.
“We look to see if a team has global aspirations, does a team really want to be the best,” said Kelly. “I get excited when entrepreneurs are working on really big problems.”
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