Are you a startup looking for venture capital that’ll help take your company from early-stage promise to a thriving enterprise with superstar potential? If so, you’ll need to be able to successfully pitch to the right companies. Among other things, this article will cover these three points:
- What venture capital firms look for in a startup
- What makes for a great venture capital pitch
- The five best venture capital firms for your company
Let’s dive in!
What are venture capital firms?
In exchange for equity, venture capital firms invest in startups, hoping to realize a positive return on their investment., Institutional and private investors are the primary source of VC cash. Essentially, VC investments are long-term partnerships between companies and venture capital firms.
What do VCs look for in a startup?
Most venture capital firms are looking for startups with huge market potential, technology that sets them apart from other companies, and incredible management teams.
If the market is too tiny, the company’s offering won’t make a dent—no matter how exceptional the product or service is. If the technology is too much like the competition's, there's little chance the company will differentiate itself.
Without a visionary management team, a startup won’t be able to make the other things work.
What do VCs look for in a founder?
Venture capital firms look for founders who have the courage not to give up in the face of adversity. These are individuals who are determined to succeed no matter what and can learn from their mistakes.
Firms also look for founders who have a thorough understanding of their business model and a first-rate ability to concisely communicate it. This means that if you’re an entrepreneur looking to get funded, you need to spend a lot of time thinking about your business model.
According to Nick Grouf of Alpha Edison, founders should have a complete “understanding of the very fundamental basics of their customers.”
What makes for a good venture capital pitch?
A good pitch walks investors from the original concept to a commercially workable idea with clarity and passion. You're only going to have a short amount of time to pitch your startup, so you'll need to be as concise and compelling as possible.
The best pitches anticipate questions about your market, such as what it looks like, what position you have in it, and who your competitors are. You'll also be able to tell potential investors what makes your management team so outstanding.
Is your startup ready to pursue VC financing?
Before you start looking for a VC firm to fund your company, you’ll first need to determine if your startup is ready. The right moment to approach a firm is going to be different for every organization.
If you want to get funded, you'll need a disruptive idea in an industry where VCs put a lot of investment dollars, such as technology. You’ll also need an extraordinary management team that can breathe life into your groundbreaking ideas.
If you think you’re ready for VC funding, you might want to check out these top firms:
Andreessen Horowitz is one of the top VC firms in Silicon Valley, ranking right up there with such legendary companies as Accel, Sequoia, Benchmark, Greylock, and Kleiner. Ben Horowitz and Marc Andreessen started the firm in 2009. It has its international headquarters in Menlo Park, CA—the site of many other financial service organizations.
The company specializes in consumer products and services and software and invests in early-stage startups and established growth enterprises. Andreessen and Horowitz made names for themselves by investing $80 million in 45 startups between 2006 and 2010.
This frenetic investing activity earned them the title of “super angel investors.” The duo formalized their efforts by launching their firm on July 6, 2009, with an initial capitalization of $300 million. That went so well that they raised $650 million for a second venture fund. In less than two years, the company had $1.2 billion under management between the two funds.
The Skype deal
One of Andreessen Horowitz's first investments was in Skype. Many experts thought the Skype deal was risky because they thought Skype would be plagued by endless lawsuits and steep competition from companies like Apple and Google.
These experts sang a different tune after Microsoft bought Skype for $8.5 billion in 2011. Andreessen Horowitz made more than $100 million on Skype alone. That happened even though the venture firm only owned a small stake.
Awards and accolades
In May of 2011, Marc Andreessen ranked number 10 on the “Forbes Midas List of Tech’s Top Investors.” That same year, both he and Horowitz ranked number six on Vanity Fair’s “New Establishment List” and number one on CNET’s “Most Influential Investors” list.
In January 2021, the firm led a $100 million Series B for the audio-chat social networking app Clubhouse, with a valuation of $1 billion.
The chances of them funding your startup
Andreessen and Horowitz say there are approximately 4,000 startups a year that seek an equity check from the company. Out of these, the firm takes a serious look at 3,000 a year. They further whittle down the possibilities to around 200.
In the end, they’ll decide to fund 20 startups.
Accel (formerly known as Accel Partners) is a venture that works with startups in seed, early and growth-stage investments. Jim Swartz and Arthur Patterson founded the company in 1983. Accel has offices in Palo Alto and San Francisco and concentrates on the following technology sectors:
- Customer care services
- Enterprise software
Here are a few of the companies Accel has funded over the years:
In 2001, Accel opened its London office as a separate fund to invest in European technology companies focusing on Series A and Series B investments. In November 2016, Accel's India arm closed its fifth fund with $450 million, about two years after closing its fourth fund with $325 million.
In May 2019, Accel closed a $575 million fund, which led to financing European and Israeli companies during a vigorous Series A round. The round was the largest in the region, bringing the total amount of funds managed by the firm to $3 billion.
New Enterprise Associates
New Enterprise Associates (NEA) provides venture capital and growth-equity backing to development-stage and emerging companies. Its primary focus is on companies involved in information technology, energy technology, and healthcare in the US, China, and India.
Richard Kramlich, Frank Bonsal, and Chuck Newhall founded the firm in 1977. Since its founding, NEA has invested in nearly 1,000 companies and realized over 650 liquidity events. Its website says, "We are a global venture capital firm with a mission to make the world better by helping founders build great companies that improve the way we live, work and play."
Its active portfolio includes more than 300 growing businesses in the technology and healthcare sectors. Over 200 NEA-financed companies have gone public. More than 320 have been successfully merged or acquired.
NEA has headquarters in Menlo Park, CA, and Washington, DC.
Khosla Ventures provides venture capital and strategic advice to entrepreneurs working on breakthrough technologies. Vinod Khosla, a co-founder of Sun Microsystems, started the company in 2004.
Here are a few of the sectors it focuses on:
- Artificial intelligence
- 3D printing
- Sustainable energy
They split their investment dollars between two funds. Each of these funds has somewhat different criteria. Their seed fund consists of “science or innovation experiments.” Often, the company is the only investor in these projects. Their leading fund consists of more traditional ventures in every single area of technology.
Here’s what they’re looking for in startups they invest in:
“At the seed stage, we're looking for a crazy idea that may have a significant chance of working. We want good teams. We don't need complete teams or even complete plans. The key technology risks of your approach—and the economic and market benefits, if it is successful—need to be identified.”
SV Angel is an early-stage venture capital fund based in San Francisco, started by Ron Conway. It focuses on companies in the Internet, e-commerce, and information technology markets. On average, they invest in one new company every week. They have an outstanding track record of backing unicorns, funding 18 billion dollar companies as of 2019—more than any other equity financing firm.
The company employs what they call an inflection point approach to investing. Here’s what they have to say about that:
“Our approach allows us to be there when founders need us most. We're known for providing tactical support at strategic inflection points in company growth, most commonly in fundraising, corporate development/M&A, and business development.”
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