• Start with a tremendously good idea
Easier said than done, but today’s market is not for mediocre ideas. Investors are looking to invest in cures for cancer and groundbreaking technology more than ever before, so be able to show the unique selling proposition (USP).
• Calculate the fund size
One of the first questions an LP is going to ask you is how big the fund is. If the figure you are looking for is less than their average bite-size allocation, then you are wasting your time.
• Focus on the team and the track record
Be sure to show the strong performance, resources, experience, the transacting ability, how you have created value in a company and track record of the group. If you have a strong track record make sure that you can prove that the team you have behind you is responsible for your successes.
• Target the right investors
There are a number of institutional investors that are avoiding venture but there are also plenty of LPs that like the idea of investing in a company and watching it grow. They include fund-of-funds; wealth management organisations that like the smaller scale of a programme and like to feel closer to the line management team are your best bet; and high net worth individuals.
• Patience is a virtue
If you put time pressure on the process it won’t happen. Fund raising has always taken a long time and now it’s going to take even longer.
• It’s not you, it’s me
Be prepared for a lot of rejection. Investors are ready for the influx of firms that are coming to the fund raising market next year so they will already have a list of the firms they want to invest in. If your firm is not on the list all is not lost, but you will have to put together a very persuasive argument.
• Get creative
VCs need to get out from under the 50 investor names that they are used to going for. If European investors aren’t interested try the US. According to the BVCA, 20% of North American LPs not yet invested in UK private equity plan to back UK venture capital funds over the next two years.
• Make the investor comfortable
LPs will want to spend a lot more time with your team so take that time to convince them that you can bring about high returns.
• Justify your investments
It’s important for LPs to know that the amount of money they are investing can be deployed by a GP in a reasonable amount of time.
• Leave the terms and conditions till last
Never start a meeting talking about terms and conditions. If you are not interested in buying a house then you don’t want to hear what kinds of terms you can buy it under.