more-arw search

Q&A Forum

Is it better to ask for more or less money when pitching to VC?

Regina Potter's Profile

Do eye-catching big numbers attract VC interest?

Answers

Topic Expert
Jeff Chase
Title: Advisory CFO
Company: Hazelcast, Juicebox Energy, and Social I..
(Advisory CFO, Hazelcast, Juicebox Energy, and Social Inertia ) |

My take on this is that VCs are driven by capital efficiency just as your company should be. As you suggest by the nature of the question, there will be unique one off's, where someone attracts interest by big numbers, they are rare and usually unique to either the team, the technology, etc. and the general population of startups are not well served by "going big". As an industry rule, raising just what you need in "The Ask" , which is supported by the "Use of Funds" slide, will make them feel like you are realistic and economical.

Jeff Langston
Title: CFO
Company: Baxter Franchise Group
(CFO, Baxter Franchise Group) |

Raising enough money to meet specific milestones towards growth (product, customers, partners etc.) is recommended. If the milestones are met, you can raise another round to get to the next level. During this time, your company's valuation also changes to more realistic numbers. Raising too much money up front when your valuation is speculative is risky. On the other hand, raising too little money won't help you meet your milestones. The rule of thumb is to raise enough money for your operations to last for 18-24 months.

Topic Expert
Kent Thomas
Title: Founder
Company: Advanced CFO Solutions
(Founder, Advanced CFO Solutions) |

These are good responses. The only thing I would add is to consider the investor's minimum investment requirement when deciding who to pitch. VC's have, for the most part, moved up the investment "food chain" and are most interested in businesses with customer and revenue traction and a well justified need for investment in the "millions" in order to scale their business model. With large funds to deploy, they simply can't manage multiple small investments and will typically avoid the entrepreneur who is looking for $500k - directing them to "friends and family" and angel investors.

david waltz
Title: Assistant Treasurer
Company: Integrys Energy Group
(Assistant Treasurer, Integrys Energy Group) |

VC's and Private Equity usually have a strategy and focus around their investment activities. Some may be by industry, some may be by "round" (seed, start-up, growth, etc.). It is probably better to realistically determine what you need and where you fit and then perform your due diligence on the relevant players rather than the other way around. That way you will be able to have open and honest discussions about the firm and its capital need, which lays the groundwork for a positive working relationship going forward.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

VCs have the same amount of due diligence work regardless of the size of the investment, therefore minimizing your request can be counter-productive. You should ask for the amount of money you need to realistically met the goals in your proposal.

Helen Rosen
Title: President
Company: Direct Approach Solutions
(President, Direct Approach Solutions) |

these are great answers and something that can help me for raising capital for my start-up venture.

Topic Expert
Dana Price
Title: Vice President, M&A
Company: McGraw Hill Education
(Vice President, M&A, McGraw Hill Education) |

If you are early stage, they generally want 18 months of runway.

Topic Expert
Joan Varrone
Title: CFO
Company: Cloud Cruiser
LinkedIn Profile
(CFO, Cloud Cruiser) |

You should do some due diligence regarding each firm to find out what their miniumum investment requirements are. For example if a firm wants to invest at least $5M and you only need $2-3M you should probably not be pitching to that firm and concentrate your energies on the firms that have a lower minimum. You also need to determine what stage the firm typically invests in as well, again, so you can concentrate on firms that are appropriate you to your stage.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Ask for what you need. Your financials are going to be re-worked any way. It is better to be known as realistic vs. unrealistic.

CV Sudarshan
Title: Sr. Executive
Company: Gorilla Expense
(Sr. Executive, Gorilla Expense) |

Do a comprehensive analysis of what you need to accomplish, over what time frame and how much you will need to do that. Add 15-20% to that amount for unexpected expenses. Typical notorious areas for underestimation are - marketing efforts, direct sales force costs, IT certifications.

Once you have all the numbers, roll them up. That should be your pitch amount. Also remember, target your pitch to the right folks. If your math comes to $350K, don't go to a VC.

David Collins
Title: CEO
Company: Glentyde Capital Advisors
(CEO, Glentyde Capital Advisors) |

• Try not to underestimate your funding needs. Burning through your cash sooner than you projected, and thus having to go back to the well prematurely, will smack of incompetence and raise questions with your backers re your other projections and forecasts.

• Don't be overly rosy with your revenue and expense projections, in an attempt to sell a better-looking story to the VCs. Those unattainable numbers will become the very targets you'll be held to, in order to tap the well in later rounds.

1798 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.