- Raising money for your startup in a virtual environment presents new challenges for founders.
- Matthew Cowan, general partner with the $1.2 billion venture firm Next47, shared his advice for landing a successful deal with a remote pitch.
- If you do your homework and establish the credibility of a trusted relationship, Cowan says investors will be willing to work through the hurdles with you.
- Visit Business Insider’s homepage for more stories.
Pitching your startup idea is hard enough in normal times, and the era of social distancing only compounds those challenges.
For advice about raising money in these new circumstances, Business Insider spoke with Matthew Cowan, general partner with Next47, the $1.2 billion venture investing arm of Siemens.
Prior to his current role, Cowan was the founder and CEO of a software startup, as well as an investor with Intel, Bowman Capital, and Bridgescale Partners.
In an interview with Business Insider, Cowan shared seven tips for startup founders who are raising funds in an environment that is increasingly digital and virtual.
Prioritize investors that can provide near-term value
Before embarking on a new funding round, it’s time to do a bit of homework first.
“Investors do lots of diligence and reference checks before they invest in a company, and smart entrepreneurs do the same thing,” Cowan said. “They also reference check the prospective investors.”
In a time when the survival of your startup could depend on steps taken in the next few quarters, it’s especially important to identify those investors who are ready and able to act quickly.
One advantage of this approach, Cowan says, is that investors who see a unique opportunity to participate in the trajectory of your business are more likely to commit their money as well.
“A core part of the venture capital playbook is value creation, which comes not just from running a check,” he said.
Build on your existing trusted networks
Once you’ve done the research of finding promising financial partners, focus your first efforts on those who are within your trusted networks.
Cowan recommends beginning with the people you know directly or those who you can reach with just one introduction, and don’t attempt to rely on weak social ties or cold-calls.
“Even before the pitch or the story is presented, you want to have that envelope of credibility — either through your own historical relationship, or one that’s very close,” Cowan said. “There’s really no substitute for that.”
Differentiate between ‘tire-kicking’ and active interest
It’s possible that you could land a significantly higher number of virtual meetings than you would in the time before the pandemic, but Cowan cautions that you shouldn’t let that distract you from your goal of getting financed.
“A lot of people take false confidence in just being able to get the meeting, and that’s a mistake,” he said. “You need to focus on getting the meeting with the level of credibility that sets you up for success.”
Your preparation can help you focus your effort, but you will still want to take care to avoid getting too involved in conversations that are purely exploratory at this time. One way to spot a “tire-kicker,” Cowan says, is to ask specific questions about an investor’s recent deal activity.
“If you’re talking to someone that’s done one deal in the last year, then by definition that makes your odds a lot tougher,’ he said.
Demo your idea in real-time
You may be tempted to pre-record your product or service demonstration if your pitch is going to be virtual, but Cowan says that would be a mistake.
“A working demo is probably worth, 1000 PowerPoint slides,” he said, explaining that he has seen hardware presentations in areas like robotics and construction automation run successfully and remotely.
“It’s not the same as showing a video,” he said. “There’s something very authentic about being on a video call in real-time.”
Combine your grand vision with rigorous planning
The disruption from the coronavirus pandemic has not only altered the medium of startup pitches, but the message too.
The days of billion-dollar unicorns are over, Cowan says, and VCs are looking for what he calls camels, or startups that can conserve precious resources for the long-haul.
“A year ago, the focus was top-line growth at any cost,” he said. “I think we’re much more focused today on core unit economics.”
In light of the pandemic — and following the spectacular implosion of several startups whose primary function appeared to be burning billions of dollars in cash — investors are once again interested in the specifics of how a business expects to become profitable.
“Venture firms will be much more diligent and careful to ensure that any investment that they pursue has compelling unit economic story,” Cowan said.
Reserve time for strengthening social ties
Forging strong connections in a video call with more than a dozen people is extremely difficult, and Cowan recommends scheduling one-on-one calls with the partners at the venture firm.
“All those soft elements of relationship building sometimes get lost in the virtual world, and we need to be more deliberate and focused on making those things happen anyway,” he said.
Additionally, you might consider setting aside time for another happy hour call where the discussion is more freewheeling and relaxed to help reinforce the trust that is needed in order to have a productive relationship.
Anticipate that things will take longer than usual
Lastly, it’s important to remember that everything is operating more slowly than in normal times, so you would be wise to factor that into your estimates about when things can realistically happen.
Communicating a business-as-usual timeline to potential investors could backfire terribly if you aren’t able to meet agreed-upon deadlines or commitments.
“You need to ensure that you’re maintaining credibility with your prospective investors on your timing and process,” Cowan said.
If you’ve done your homework and established the credibility of a trusted relationship, Cowan says investors will be willing to work through the hurdles with you.
“If a specific investor is in a position to add a lot of value to help you build your business, they’re probably going to be more interested in investing in your business as well,” he said.
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