If youre an avid TechCrunch reader, someone who loves to absorb endless startup profiles and pore through fundraising stories, you might think raising venture capital is easy.
In reality, its very, very difficult and not the best source of capital for most businesses.For startups hoping to scale far and wide as fast as possible, VC may be the right fit.
To shed light on the process of raising equity capital from venture capital firms and provide some exclusive tips and tricks for Extra Crunch subscribers, we sat down with three experts on the subject.
Below are the top pieces of advice from Charles Hudson, founder and managing partner of Precursor Ventures, Redpoint Ventures general partner Annie Kadavy, and DocSend founder Russ Heddleston.
The following has been lightly edited for length and clarity.1.
First, make sure your company is fit to raise venture capital.Charles Hudson: I think venture capital, its really a specialty type of capital.
Its really for companies that have the aspiration to grow really quickly, to build really large businesses If youre not a company that needs to grow quickly, venture capital might not be the right source of capital for you.
There has to be a really big prize at the end of the journey.2.
Raise capital early if youre stressing about small costs or fretting competitionRuss Heddleston: If youre thinking about whether or not to raise, there are a couple of reasons that I will often advise people to raise early.
One is if theyre really stressing about buying a whiteboard for their office, or like some something of relatively small cost.
If you think it could be a big company, and youre stressing about small things, raise money and buy the whiteboard, hire the additional person and get back to what you should be doing, which is running your business and growing it quickly.The other thing is if you ask the question, is there a competitor I dont know about? If you heard tomorrow, that competitor just raised $2 million, or $5 million or $10 million, how nervous would that make you? For some businesses, youre like, I dont really care, its a services industry, its not a winner take all market.
And other times, youre like, oh, Id be really nervous.
So if either those apply, thats a good reason to make a compelling case to someone like Charles.
The number one thing you can do to get a VCs attention is make [your pitch] really simple.
Precursor Ventures' Charles Hudson3.
Its OK to take a salaryAnnie Kadavy: Id be hard-pressed to think of an example where a founder is not paying themselves, the question, though, is how much? Youre paying yourself enough so that the basic costs of life and running your business are not giving you anxiety, because as an early stage investor one of our primary roles is to try and keep the baseline stress as low as it can be, because its really hard to go build a company.If a founder is coming in at the Series A and they say Im going to go pay myself $300,000, we might be like, well, that doesnt really feel right, shouldnt you want to put some of that money into the company? The ranges Ive seen are anything from $60,000 up to probably $120,000 at the Series A, or maybe $150,000.
Then, as the company grows and as the balance sheet grows and its de-risked, your salary as an executive at the company will scale with that.