For founders building software startups, money can be a major hurdle. How can you be sure, though, that venture capital is the right choice for you? After all, crowdfunding, bootstrapping, and alternative funding sources have only grown in popularity as fundraising mechanisms and show no signs of slowing down. Angel investors have become easier to find thanks to technology and growing networks, and as a result, more companies are looking to startup investment platforms like SeedInvest, Republic, FundersClub, and others.
These guidelines can be applied generally to the entrepreneurial crowd, but they’re especially pertinent for founders raising B2B SaaS venture capital.
You need domain expertise.
One of the most obvious and immediate benefits of working with a software venture capital firm is access to experts in your field. Top SaaS venture firms like Emergence Capital, Bessemer Venture Partners, Battery Ventures, and, of course, High Alpha, have helped some of the world’s most successful software brands (think: Zoom, Box, Gainsight) to scale because they’ve worked with hundreds of other companies. If they don’t have the answers, they’ll connect you with others in their network that do. At the end of the day, they want you to be successful so that they can generate a return on their investment.
You want to grow your network.
A VC firm’s value should extend beyond the check they write. If you’re a SaaS company, it’s likely that you’ll pitch many SaaS venture capital firms during your fundraising journey. As you receive term sheets, think about the firm’s value from a 1000-foot view. Can they connect you with other entrepreneurs in their portfolio? Do they have access to the talent you need to achieve your next big milestone? Will they introduce you to potential mentors, or future investors? Your VC could even introduce you to potential customers, so be sure to ask about your investors’ connections before you finalize a deal.
You want to scale your startup. Fast.
Companies that win move quickly. “Move fast” is a core value at High Alpha, and it’s a value that we share with our portfolio companies. Founders who want to beat the competition know that they need to move fast, grow quickly, and test often. Speed is particularly important if your unit economics depend on your company reaching a certain scale. Venture funding can help companies hire the right talent to help them move faster — which is a priority, since VCs hope for a 10x return on their investment.
You want to acquire, sell, or (some day) go public.
VC-backed technology companies are traditionally in a better position for an IPO or acquisition, which can help accelerate growth and create liquidity for the founding team and early employees. With the support of venture capital funding, founders are often better equipped to acquire companies than their bootstrapped counterparts. VC funding also helps to create credibility when attracting talent and selling to customers. Further down the road, public stock can also make it easier for companies to attract talent, as stock-based compensation has clear value for employees.
You’re prepared to face rejection.
On average, a founder raising $2 million in seed funding has 27 meetings with investors before completing their funding round. That’s a lot of pitching — which means a lot of rejection. VCs reject deals for a number of reasons. Timing might be off, an investor might not believe your company can reach venture scale, or they could have companies in their portfolio that represent a conflict of interest. Founders should be prepared to hear “no,” and they should remember that the reasoning doesn’t always have to do with their business.
While venture capital isn’t the only option to grow a software business, it can be a valuable tool in an entrepreneur’s toolkit. If you’ve raised venture capital — or if you invest in SaaS — tell us: what would you add to the list?