On average, a VC reviews 400-600 companies for ”A-round” investments each year and selects 4-6 (1%) of them.
Large angel investors review 100-200 companies for ”A-round” investments every year, and also choose only 1-2 (1%) of them.
What about the remaining 99%? Are they all simply “not fundable”? Definitely not! In many cases founders simply fail to convey their business message. They are speaking in the language of technology, but investors are listening for business terminology. Unfortunately, they don’t get a second chance to make a first impression.
Most startups are focused on their product and technology, which is normal in early stages. Those who have reached proof of concept stage start developing their go-to-market strategies and invest in sales and marketing channels, yet the third corner of the business triangle – finance – hasn’t received its due attention.
“In A-round, you need to act like a company. You are expected to be professional in all aspects. “It’s not a seed game anymore … We expect them to understand their company, not only from the product perspective but from a market and business one” (VC partner quote).
The 3 fundamentals that your company needs to demonstrate are the success factors of every business:
1. Make It. Showcase a superior product or service that presents relative advantages over any existing alternatives and a significant barrier against present and future competition. Your solution should answer a clear pain or need in a way that the technology or product can successfully cope with.
2. Sell It. Define, understand, master and measure your addressable market, both in the present and the future. Be aware of the market’s growth potential and take into account scalable mythologies to penetrate into it.
3. Make Money or ‘Buy low Sell high’. This is how you generate profit rather than only revenue. It involves generating a long term profitable model while aware of its limitations, ensuring its sustainability and alignment with the company’s milestones to set as many ‘valuation tipping points’ as possible.
The ability to address each of these aspects is typically found in different sides of the individual brain, making it difficult for most people to succeed at all three areas alone. To present these factors in the most coherent, simple and concise manner you need to be well prepared and supported by other individuals with complementary strengths. Planning ahead with your own team and professional experts will help you to connect the dots, build a comprehensive business-oriented narrative and be fully primed for the journey.
While nothing can guarantee funding success, fully developing each of the three corners of the fundability triangle significantly increases funding probability to help you become one of the 1%.
The article was written by Ran Matoki, Founder of Matoki Strategic Finance Ltd. Visit us at: www.matoki-sf.com