What Matters Most to Venture Capitalists

What Matters Most to Venture Capitalists

venture capitalist
Black man in a suit with a fist full of money
(Source: ThinkStock)
  1. Low churn: The churn rate of your product is a key metric that shows how satisfied your users are. High customer satisfaction indicates that you have a differentiated, valuable product. Be sure to track customer engagement so you can show investors that you’re attracting and retaining users at a significant rate.
  2. Low burn: Your burn rate tells VCs how efficient you are with capital. They’ll want to know your current and projected burn rates so they can assess how long their investment will last and how well you’re likely to manage it.
  3. Lifetime value vs. the cost of acquiring a customer: This is the ultimate ratio: how much you spend to attract customers vs. how much you expect to earn from them. The better the ratio, the easier it is to achieve a high valuation.

Prepare to Pitch
Once all the components of your pitch are in place, you’ll need to build momentum before contacting potential investors. The following steps will help you identify prospects and prepare for your pitch meeting:

  1. Build a media presence. You want VCs to know who you are before you approach them. Create an AngelList profile and build a following there. Then, contact media outlets you know VCs read – such as the Wall Street Journal, PE HUB, VentureBeat, and TechCrunch – to generate publicity. The more places you tell your story, the more likely VCs are to take your call. Dropbox executed this strategy brilliantly by creating serious media and investor buzz ahead of its $4 billion valuation in 2011. Everyone knew what Dropbox was, and everyone wanted a piece of it.
  2. Create a targeted VC list. Use CrunchBase and Mattermark to find out which funds invest in your space. Then, identify which partners are best suited to your company and whether they’ve invested in your competitors. Finally, create a spreadsheet with this information, and narrow your list down to the 20 most promising candidates.
  3. Organize your books. You don’t want to sabotage a deal because of legal issues. Make sure your accounting is current, all taxes are paid, and all employment contracts are in order.
  4. Hire an attorney and business advisors. A good attorney will protect you against unfavorable clauses and prevent you from signing a deal that jeopardizes your company’s future. Likewise, seasoned advisors who have successfully raised funds themselves will help you polish your pitch and avoid rookie mistakes.

Wowing investors isn’t easy. But if you follow these tips, do your research, and clearly articulate your company’s strengths and achievements, VCs will have more confidence in you–and will be more likely to invest.

–written by Sathvik Tantry

Sathvik Tantry is the co-founder and CEO of FormSwift, a SaaS platform helping organizations go paperless. FormSwift’s tools allow businesses and individuals to create, edit, sign, and collaborate on documents and workflows in the cloud, eliminating unnecessary printing, faxing, and snail mail. 

BusinessCollective, launched in partnership with Citi, is a virtual mentorship program powered by North America’s most ambitious young thought leaders, entrepreneurs, executives, and small business owners.