Three Questions VCs Ask Founders
In this article, Dragon Argent look at three key questions any founders aiming to raise venture capital must be equipped to answer.
The truth is that raising venture capital is the same as any other complex sales process these days. It’s not easy but it no longer depends on having the right connections or going to the right school or university. It’s time-consuming, requires preparation, hard work and a little bit of luck.
However, if you have the right product (for venture capitalists) and work hard at it, you should get there. What will create more certainty is the ability to answer three key questions:
1. Why this Business?
Have you built or are you building a compelling solution to a big problem?
VCs need to believe that if things work well, then they will have a stake in a very valuable business. They might choose to back 1 out of every 250 businesses they see, with the hope that a single investment might return up to 2.5x the total value of the fund.
Therefore, you need to credibly paint the picture that not only is success inevitable, but success means a potential $1bn opportunity.
2. Why this Team?
Are you a strong, ethical team who can execute rapidly to seize this opportunity?
They need to believe that the team is made up of high-quality people with relevant experience. That gives the best chance of executing rapidly on the opportunity and of figuring out the inevitable challenges that the business will face as it grows.
In short, if you have answered question one appropriately, it’s now about convincing the VC you are the right team to build the solution to the big problem.
3. Why Now?
Will you be able to grow your business rapidly if you execute effectively?
Great businesses are in the right place at the right time. Is it the right time for your business?
For example, YouTube in 2000 would have flopped as broadband penetration was far too low. YouTube in 2010 would have been too late. Someone else would have grabbed the opportunity. It was founded in 2005, which was the right time for the business and evidently, with the right team.
Why is now the right time for your solution to the big problem you have identified?
Realistically, venture capital is designed for a small number of business, meaning it's not for everyone. If it isn't right for your company or idea, getting backed by a VC could hurt rather than promote the development of your business. However, if you can answer these three questions confidently and convincingly and your reasoning is defensible in the face of questioning, then VCs need you as much as you may need them - so it should be a relationship of equals.
If you would like to discuss the possibility of raising venture capital or would like support preparing for and executing a VC raise, then please get in touch as Dragon Argent would love to help you.
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