How To Get Your MVP Funded By A VC
I sat down with one of my friends from Accel Partners today and he was telling me about the amount of MVP and interviews that he sees everyday. He also talked about how a lot of Entrepreneurs approach him for advice on how to get their MVP funded by a VC. Getting a MVP out there is already hard enough, but getting funded and getting attention from a VC is even harder. The following is some things to note when you are preparing your MVP.
You have to understand that VCs are all about the numbers game. When you are trying to get your MVP funded by a VC, you have to put your product into a numbers game. If your product is not already making money, you have to show them the amount of traction that you are receiving. This varies between product and product, but say for example if you are creating a big social content sharing site. You have launched a MVP of the product and you feel that it is ready to hit the funding level. At this point, you should be asking yourself, how much traction/feedback am I getting from the product? If there isn’t a way to make money, you must prove to the VCs that this app will show solid growth. The best way to show them that this can potentially be a huge startup is by showing them results. How many people have signed up for the app already? More importantly, how many people are actually actively using the app and telling their friends about it? Is the app growing rapidly or slowly? Note all these down before you meet up with a VC. Show the VC some data of the app in an infographic or graph form so they know that this will be the next hit thing. The first part to reaching a successful funding round is getting your numbers together. If you failed to show the VCs your numbers, you might lose your chance of funding and might not be able to meet with them again. Numbers numbers numbers.
The amount of numbers varies between product to product. Again, a social content sharing site might need huge numbers in order to attract a VC, while a more niche b2b product will need lower numbers but more transactions. If your product is a Saas product, most VCs recommend that you at least have 100 paying users before actually approaching them.
A strong team
VCs invest in more than just your MVP, they invest in your team. The reason they do that is because they want to ensure that this team can grow and have enough talented in house staff to keep the business growing. For example it will be a lot harder for a solo founder to raise money from a VC. The reason is because say you raise 200,000 and you have to spend 100,000 of that 200,000 to hire a new CTO, there goes half of your investors money. Not to mention that once you get your product up and running you will need to hire Business Devs. Marketing Professionals. UX designers (if necessary), Content creators and many more. Funds eat up quick, so they want to see a solid team. Don’t get discouraged if you are a solo founder, but VCs will certainly ask you about your team during the meeting. Who is in your team matters to them too. If you have someone in your team who has already been successful in the startup world, they are more likely to invest in you because of the experience and knowledge the person has. If you do not have a team and you are a solo founder, then you must have a technical advisor. Technical advisors will usually cost you about 0.25% of your early growth startup’s equity, but a top named advisor will make a VC feel more comfortable about their decision. Usually CTOs and former CTOs are the best technical advisors.
Passion and Story
VCs seek for entrepreneurs that have a strong story and have passion for the product. Fab’s CEO Jason Goldberg said that he was terrible with running a startup in the beginning, but he had strong storytelling skills. Most VCs have been through what you have been through, so they can relate to your pain and struggles. When running a business a lot of people say, “Don’t do it for the passion”, but how are you going to convince someone to invest in your product if you won’t use the product yourself? If you have no knowledge or interest in the product, then how can you grow it? Give the VCs a reason to believe in your product and prepare a good story for it. Inspiring them is a great way to get your MVP funded by a VC.
I recall talking to a CEO of a startup that made out at least 12 calls a day to different VC firms. She told me that everyone of them that got on the phone with her asked for an introduction or reference. She feels that it is extremely hard to get your mvp funded by a VC or set up a meeting with a VC without proper introduction. VCs believe that if you are an entrepreneur you should be able to extend your network and find someone that they already know. Also, having feedback from someone that they already know means a lot to them. The more introductions and references that you have the better because it makes the VC feel more confident about your MVP. Finding someone isn’t always easy. If you are starting off it is best to look for an entrepreneur that is already associated with the VC’s firm. Reaching out to other startups might be the best way to approach this. You do not necessary need to access to the CEO, it can be anybody that knows the VC that you are targeting.
Do A Little Research On The VC
Sun Tzu, author of the Art Of War, once said , “Know yourself and know your enemy and you will win 100 battles.” VCs aren’t your enemies, but you should definitely do some research on the VC before approaching them. Researching other partners in the same firm will help you out as well. For example if you approached a VC that only closes deals on mobile apps, but your app is a web based app, then it is highly unlikely that your MVP will get funded. Look at the VCs previous deals and try to analyze how the previous deals get funded. Was the previous deals in a MVP stage or a solid growth stage already? This can help you prepare your product for a better approach.
Don’t over think it! Be prepared and be ready. VCs will meet with you because it is apart of their job and a lot of them love meeting with new entrepreneurs. You might have to go through a few VCs before ever reaching your first funding round, but you can do it! Treat the VCs nice, because even if they are not ready for the deal, they might refer you to other VCs that will be interested. Building that inner circle of references and introduction is a great boost to get your MVP funded by a VC