Not all companies should have (or need) venture capital to succeed. As the researcher and former VC Dileep Rao point out, "the reality is that most companies are not qualified for venture capital and will never do so." However, a highly scalable company should not necessarily avoid seeking capital. In fact, many successful businesses have grown because of this. In the end, your company's success in securing capital depends on the size of the market and the opportunities, the founders and the team, and the adequacy of your product / market.
Finding a Great Market Opportunity
To better understand the reality of your company's future, understand the size and potential of your market. Research your desired market thoroughly and analyze the data. You can start by looking at some helpful tips from articles like this one or by using free resources to collect data about your market. A large market has many potential customers willing to spend money, who are already large or who are growing rapidly or who have a fragmented customer base with a low concentration of customers.
In my business, we focused on an untapped market: over 90 million American hourly workers. We have tried to create a place for them to find a better job. As Uber has proved, mobile technology allows hourly workers to instantly access information to be able to work when they want it. In January 2014, after talking to many potential customers, we moved from a web social network to a mobile market. Prior to that, we were growing exponentially, but not virally. In the end, customer demand motivated our decision to rotate the company.
Listen to your customers when they make these vital decisions. After the change, we rigorously measured the acquisition costs of our customers and the measures of value for life. Many of our investors supported the company because of the first financial indicators and the importance of the market. Take the time to measure these types of data for your investors.
Seeking Solid Co-founders
Venture capital companies are looking for exceptional founders. Personally, I believe the best founders have a combination of domain knowledge, vision and the ability to build and sell a good product. During my decade at OCA Ventures, I have met more than a thousand entrepreneurs, founders and passionate management teams. Our best investments were with teams who knew how to execute, often by selling. They sold their vision: to angel investors, the first members of the team and even the beta client before the product was created.
The same traits that make big sellers often make great founders. My own co-founders have passion and courage. Find partners who have similar values and different functional skills. To find good co-founders, network diligently and do not be afraid to share your idea. Be comfortable having frank and open conversations about roles and responsibilities from the start.
Make sure you have the right product / market
Are companies buying your product as fast as you can, or are sales cycles long and the ROI of word of mouth is low? If it's the first, you could be a candidate for capital. As an investor, I often oversaw a sales pipeline for months or more to see how many customers actually closed. This would indicate the product / market fit of the company before I decide to make an investment.
In addition to these three factors, timing is an important factor to consider in obtaining venture capital. Attempting to raise money when you are low (or out of) money is not a wise practice. Instead, think about waiting for a venture capital fund either at the beginning or the middle of a fund cycle and that it is actively seeking to invest. Also, be aware of the time of year that you decide to dedicate to fundraising. The summer months and some winter holiday weeks could be slower because a key investment partner might be missing from the office.
When looking for a venture capital partner, remember that they will be intimately related to your business. Someone who understands the field of your business can add continuous value. Make sure your potential partner is behind your vision and mission.
The funding process can be long, hard and not the right path for most companies. However, if you have the right strategy coupled with the right capital and the right partner, an amazing growth company could be the result of the storybook.
Author : Eddie Lou is the executive chairman and co-founder of Shiftgig, the main marketplace connecting businesses to shiftworkers.