- Stone & Chalk released its free 42-page capital raising guide for startups this month.
- As part of the launch, the company held a panel discussion with members from venture capital firms on the investing process.
- The panellists underlined the importance of founders building a relationship with venture capital firms before asking for an investment.
- Visit Business Insider Australia’s homepage for more stories.
So you have a startup and you want to score some funding from a venture capital (VC) firm. VCs say that if you're only asking at that point, you're probably too late.
In July, innovation hub Stone & Chalk released a free 42-page capital raising guide for startups, which includes the ways you can raise capital, what venture capitalists look for, and how to pitch your startup.
During the launch, Stone & Chalk hosted a panel discussion where a range of venture capitalists provided insights on the funding process. The panel included Simon Cant, co-founder and managing partner at Reinventure, Michael Dovey, general partner at IAG Firemark Ventures, Andrea Gardiner, founder and CEO of Jelix Ventures and Chris Quirk, investment manager at Rampersand.
They discussed the ideal timeframe for when startup founders should get in touch with VCs for funding, and the outlook for investments amid the coronavirus pandemic.
The best time to ask for an investment
The panellists said it was much better for startups to build a relationship with VCs long before they ask for an investment. It allows the VCs to get to know the founders and creates a smoother process for when you're ready to seek funds.
"If you haven't been in touch with a VC and you are trying to raise immediately, then that's probably too late," Quirk said.
Instead, the panellists agree that it's the earlier the better. "It's never too early to get in touch with them," Dovey explained – the catch being that you have to find the right way to connect.
"The mistake that I think a lot of founders make is the spray-and-pray approach, almost like spam," he said. "So don't send a mass email to every contact in your contact list or a generic email list of every investor that you've got in touch with [when] presenting your startup." Dovey also advised against sending cold messages through LinkedIn.
The best way, according to Dovey, is to get in touch with VCs through a mutual connection.
"We have a website with our portfolio companies listed," he said. "Perhaps it would be helpful for the founder to make a connection with one of our portfolio companies and use that as a pathway to then build a relationship with us."
And, of course, do some due diligence on the company – find out who it is and what it invests in, then use a mutual connection to make that contact.
Cant agreed that the way you get in touch with a VC is important. He too suggested getting in touch with existing portfolio companies or making connections as the best way to make contact with Reinventure.
"Something that I've seen work extremely well is when founders will get other founders who are further along the journey on to an advisory board or in some other capacity to ... support them in that journey," he said.
But the VCs warned against outsourcing your capital raising to advisory firms.
"I would absolutely suggest: do not do that," Cant said. "There are a lot of VC funds who won't even take a look at a pitch from an advisor firm.
"Part of the theory here is that, if I bank you as a founder, I need to be confident that you can raise the next round of capital. Now if the last round was raised by an advisor, I have no confidence that you'll be able to raise the next round on your own."
Gardiner backed that up by saying "the best person to sell the investment opportunity is going to be the founder".
"They're the ones that understand the space and are genuine and passionate about what they're doing," she said. "And I think secondary people just cannot do as good a job of selling it."
How investors feel about the coronavirus pandemic
The coronavirus pandemic has no doubt thrust numerous sectors into disarray, from the travel industry through to hospitality.
But companies seeking funds seem to be bucking the trend. This year around 235 listed companies have raised nearly $15 billion on the ASX, around triple the average. And smaller private companies have followed a similar – albeit smaller – trend.
Cant acknowledged that while there is "a little bit of trepidation at the moment" there's "more money sitting in the wings" to go into new ventures.
Dovey said "it's not all doom and gloom" and that IAG Firemark is still "very much active". "We have dedicated funds with capital and the current environment hasn't changed that at all for us," he said.
Dovey also had an optimistic view of the future of investing. "This COVID environment will pass," he said. "And I know the Australian venture capital ecosystem has probably never been as strong as what it currently is - there's more participants than ever, there's more funds than ever."
He added that the maturity of the ecosystem has lifted significantly in the last five years.
"I think the future's looking good," he said. "We've just got to get past this COVID hump hopefully this year and things should start turning around."