Finding funding for a new venture is a tricky road to navigate. You will more than likely hear ‘no’ quite a bit — whether you are approaching investors as a founder or even as an investor who wants to launch a new fund. Arlan Hamilton, a venture capitalist who launched a seed fund called Backstage Capital, explained that founders should not take rejection personally. For each company she invests in, she sees around twenty-five companies. She states that other investors see between twenty-five and 100 companies for each new investment.
Investors have to play what Hamilton calls a “numbers game” to figure out what are the best companies for their investment portfolio. Similar to startups, institutional investors also have to aggregate financial resources aka raise funds when they start a new fund.
Managing and investing other people’s money creates a pressure for the investors to have great returns. Regardless of the amount of time, it takes for an investment firm to raise money, anywhere between a few months to a few years, VCs have to be strategic and as Hamilton describes it, “careful how they spend it.” With that in mind, Hamilton says it would be beneficial for founders who plan to approach outside investors to spend some time researching the venture cycle from start to finish. That is, in Hamilton’s own words, knowing the process of “how venture funds are formed” to understanding “how capital is deployed.”
Hamilton reiterates that you cannot take rejection from investors personally. VCs are shooting to choose winners — companies that they can make back 10x or 30x the amount they invested. Because investing in startups is already risky, Hamilton says, “when analyzing EACH company for possible investment, [an investor] HAS to imagine that your company can be that special one that does well enough to return the whole fund.” She provides useful examples in her Medium article on the different factors investors, both VCs and Angels, consider when they are deciding which startups to invest in.
Similar to our previous post on fundraising through the eyes of a founder, Hamilton emphasizes from her own vantage point that regardless of the outcome, founders have to staying true to their core mission. Because fundraising is such a time consuming process that you may not get the results you are looking for, it’s extremely important that you do not forget the needs of your customers while chasing intros and meetings. With the high likelihood of hearing ‘no’ from investors, you want to make sure you do your research to make sure that your startup aligns with other companies in a potential investor’s portfolio. Hamilton also provided some key resources as you do your homework in her post.
Bold Staff paraphrased a Medium article by Arlan Hamilton, Investor and Managing Director of Backstage Capital. Read the original here.
Photo credit: Oleksiy Mark
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