What is the worst thing an entrepreneur can do when approaching a venture capitalist for funding? What share of a young venture is it fair for an investor to request?
These were among the questions asked of a panel of investors at Thursday’s Early Angels, Angel Groups and Venture Capitalists program held at University of North Carolina Wilmington’s Center for Innovation and Entrepreneurship.
John Cambier of Durham-based Idea Fund Partners; Mike Rhoades of Wilmington Investor Network; and Chris Jones of Cape Fear IMAF talked about their organizations’ policies, priorities and preferences in evaluating investment opportunities, in a discussion moderated by Tracy Harris of GCM Grosvenor, an institutional investment firm.
The panelists provided some pointers for early-stage companies seeking funding, emphasizing adequate preparation before making a pitch but also encouraging aspiring entrepreneurs to get their proposals in front of investor groups.
“Nothing ventured, nothing gained,” Rhoades said.
“If you’re looking for money, ask for advice; if you’re looking for advice, ask for money,” Cambier said.
To that point, Rhoades added that sometimes finding a strategic partner can be a good alternative, or complement, to securing an investor.
The panelists stressed the importance of networking, of developing a focused, compelling “elevator speech” of about 30 seconds and of trying to line up investments from a variety of sources. Having a promise of some investment can make a company’s case stronger as it goes to another investor.
Often, investor groups will partner with each other in making an investment in a company.
When it accepts investments, a startup must consult with those investors as it pursues its goals, Rhoades said, adding, “Keep in mind, we are now part of your decisions. Don’t underestimate what that means as you go forward.”
Crowdfunding success at an early stage can be an effective proof of concept as a company approaches venture capitalists for funding, Cambier said, and the other panelists agreed.
“Crowdfunding has become something [the potential investor] can look to as validation,” Jones said.
And that “worst thing”?
The panelists agreed that there was not one specific thing that could spell doom for a young company’s funding request, but that an entrepreneur’s unwillingness or inability to invest his or her own capital in the venture was certainly a red flag.
“If the entrepreneur is not willing to put his life on the line for [the business], we’re not interested,” Cambier said.