Navigating the investor jungle

July 4, 2018

Fundraising is a hard process. It is crucial to understand the different types of investors and their motivations so that you can increase your chances of closing the round fast. We wrote this explanation about the different types of investors and what they care about to help you get closer to creating your dream company and putting a dent into the world.

 

Classic VC

VCs are looking for a large ROI, x10 on their money, they are basically looking for the next unicorn. If your goal is to make $10M per year after 5 years, it may not fit the VC model. That is why you need to present to them a large market size, a huge vision and ambitious commercial roll out (you can refer to our previous article about creating your business plan).

 

Always check in what industries they invest, what is their ticket size, who are the fund's investors (LPs). The VCs need to make their investors happy, so when preparing for the meeting learn what their investment criterias are. 

The fund is set up for a certain amount of time, for example 7 years. You need to know in what stage the fund is. In the beginning they may need to invest in a few startups relatively fast but later in the fund cycle they are more focused on exiting companies or doing followup investments, so they might not be able to invest in new companies.

 

Corporate VC

Corporate VCs are looking for tech innovation, alignment with the company's strategic road map, IP. These factors outweigh the pure financial benefit of the investment. 

They usually don't invest in seed stage, and they can serve as a link to collaboration within the company. ​

Part of their job is to see innovation in their industry so be careful not to fall into the category of just being an interesting startup for them to see.

 

Corporate VCs put strong emphasis on IP, so filing for patents can make you a more interesting investment (it can also help with other types of investors, but less). Although some entrepreneurs believe filing patents won't be useful for them because their product and market will still change, keep in mind that CVCs are more interested in the technology itself and less in the startup.

 

Angel investors:

Angels can move fast since it's their money so there is little bureaucracy. You need to convince only one person. It can depend on what they like, on their 

​personal ​experience, gut feeling, and it depends on personal relationships more than in other investor types. Angels can invest also if the potential exit is not very big.

It is important to have a professional angel investor that understands the risks in this type of investment (not people that will ask for their money back when they want to remodel their kitchen), and it's better to take someone that can bring value to the startup.

 

Grants:​

Grants are excellent for startups since you get money and don't need to give equity. There are several leading programs, such as the ​Israel ​​Innovation Authority (formerly called the ​Chief Scientist​) with the main programs: TNUFA, "starting companies", bi national programs, and more.​ One specific interesting bi national is with the US called BIRD.​ Horizon 2020​ with european grants is also very interesting, with the most relevant project called SME 1 and SME 2, which can reach several millions of Euro​s.

 

​The down side is that it takes a long time to apply for grants, a lot of work, and you won't necessarily get it eventually.

​If you do get it, there's still a lot of administration you have to deal with.

Some investors will stay away from companies that received an investment from the​ Israel ​​Innovation Authority because of some of the rules that apply​ (for example if you sell the company and IP goes out of Israel you need to give back X6 on the investment they gave you), but this has improved a lot in recent years. Some investors find it as an advantage, since it means their money is leveraged by an additional non-diluting investor and that the startup passed a rigorous screening process hence there is less risk for the investor. 

 

The Israel Innovation Authority holds conferences where your venture can find more funding opportunities. 

https://innovationisrael.org.il/

 

The SME European program part of the Horizon 2020:

https://ec.europa.eu/programmes/horizon2020/en/h2020-section/sme-instrument

 

Bird with the US:

http://www.birdf.com

 

Now that you know what type of investors you are looking for, go create your investor materials at VCforU.com and go get them!

 

 

 

 

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