In my earlier blog, I suggested 10 ways to tailor your startup company so that investors are attracted to your business. Yet you must “find” them before attracting them. I recently attended a meeting where the speakers described how to find VCs or other investors. At the event, their best suggestion was for the startup attend a meeting where a VC would be speaking and then ask a question so that the VC would remember you. Given my philosophy that a startup needs to capture capital quickly, I thought to myself that their recommendation could not be that efficient since it was too simplistic and there are other avenues other than attending a random event. Here are my five best strategies to finding VCs or other potential investors.
1. Attend local seminars or events where several — not just one — VCs are panelists or where many VCs will congregate and invest in your industry/”space”
Currently, I have a healthcare company seeking funding. Since, based on my earlier comments, only smaller number of VCs invest in healthcare, I needed to find an event where I could find many VCs at one event — especially those in my “space”. By happenstance, I was invited to one healthcare event where the largest numbers of VCs would be attending since it was a luncheon with a health tech showcase. Its only panel was chaired by 5 VCs and corporate investors. I not only met with many VCs but also lawyers and accountants (another approach) who work with healthcare VCs and would also lead me to other potential VCs. That event alone generated several leads, saving months of footwork for reaching out to the moneytree. I see this approach more efficient that the many “meetups” or other venues or conferences, but, unless it is of particular interest to VCs, I don’t bother attending those events.
2. Seek large corporations as potential investors
In the same health tech event, I met with a potential corporate investor. Again, depending on the technology, you should seek potential corporate investors which have an investment arm. Many corporations now seek potential acquisitions in the startup space, as a means to diversify product offerings or understand the company’s technology. There is a British publication focused on corporate investing. Intel, EBay, Amazon, Google, GE, Verizon, Qualcomm, and a host of other companies have investment divisions. Again, attend events where they will participate. At my last healthcare event, I noted Johnson & Johnson, Resmed, and Medtronics, all of which have investment arms.
3. Execute presold distribution agreements if the product can be sold internationally
Last week, I observed that a healthcare company sold its distribution rights to certain parts of the world for $85 million to an international heathcare company! Given that its clinical trials cost over $600k a quarter, the company desperately needed capital. In the entertainment industry, I once met a Hollywood film producer for the Steven Segal movies, who revealed to me that he financed his U.S. productions by pre-selling the international distributions. Selling distributions are fairly common approaches to finance startup operations. In my situation, I have met representatives from a couple of Asian countries who identify products to distribute in their country and are willing to buy such distribution rights. To meet such representatives, I attended a scientific meeting regarding Japanese healthcare issues where foreign companies would be present. This is a different angle from having an “investment”, since it suggests that your company has an intellectual property attractive enough to the foreign company.
4. Identify governmental assistance or credit
The U.S. offers a lending/grant vehicle entitled SBIR or loans through the SBA. If medically related, many reach out to the NIH which continuously offers grants to thousands of small research teams. Chilean government provides $34k – which goes far in Chile — and residency for one year for foreign startups. Spain now offers governmental financing or grants for startups. Note that any deal related to governments entail considerable paperwork and patience, since all do not write checks immediately. Governmental funding takes months if not a year before they bear fruit. And like any paperwork, it seems that many were drafted by lawyers for lawyers in order to complete them. Unless a member of your team has a law degree, expect to spend some money on lawyers. And, although the results are satisfying in their cost of capital, such funding does take months – in the case of the SBA, maybe a year.
5. Do some crowdfunding if the product fits the bill
Although in my earlier blog, I don’t believe that crowdfunding should be the principal source for funding, it is a helpful tool to gauge traction for smart investors. I know of a wealthy entrepreneur, who can easily finance the company’s production phase, place his company’s product on KickStarter. He can easily shell out a couple of million to finance the operations, but he realizes that he can “OPM” – Other People’s Money – the financing of his product by showing “traction”. The trick to crowdfunding is to strategize a digital marketing campaign at the start of the crowdfunding program that will be effective. Crowfunding platforms are not marketing tools in themselves. The startup has to set up the marketing strategy. Also, all crowdfunding platforms limit your funding cycle within 2 months or the company will face a higher premium on the capital or forced to return the capital.