If you have a tech startup looking for funds, you already know the competition is intense. But there are strategies that will help you to get funded. Investors revealed their preferences for funding technology firms at the 2012 Consumer Electronics Show (CES) in Las Vegas.
On her blog, the chair of the CES venture capital panel, Joey Tamer, writes “each early stage fund planned to invest in a Series A for four or five new early stage companies during this year.”
Ms. Tamer is a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices (www.joeytamer.com).
“In the case of Jerusalem Venture Partners, Yoav Tzruya reported that this number represents no more than 1 percent of the 600 companies JVP reviews each year for its early stage fund,” says Ms. Tamer.
“Kevin Spain of Emergence Capital which has a focus on B2B applications, and Chris Petrovic of GameStop Digital which is a strategic investor/acquirer of game companies, as well as Habib Kairouz of Rho Capital agreed with the plan for four to five new deals this year,” she adds.
“We are in a boom period again, this time for the number of early stage companies in play in the market,” Ms. Tamer explains. “The continuing trend that allows for new technologies and applications to be built with many off-the-shelf tools, using world-wide technical expertise, for much less capital, has created many new companies competing for the funding resources available.
“The new trend of incubating companies in accelerators has added some seed capital to these concept-companies to get them through their initial product development,” she says. “But then these companies need to get some traction in the market, hopefully to significant revenue, before they can hope to move from seed capital to Series A.”
Ms. Tamer indicates you have options to consider if you can’t get from seed to Series A or from Series A to Series B.
“Early stage companies not attracting that critical Series A or Series B funding should consider connecting strategically or through acquisition or merger with other similar-stage companies to create a stronger offering for funding,” she advises. “Aligning with other early companies that would enhance your market position or extend your product offerings or brand, you might attract that essential next stage of funding.”
She explains a developing trend.
“Kevin Spain added a new point, that he sees a strong emerging trend in B2B and enterprise applications using the new technologies that are mostly focused on the consumer market now,” she writes. “He advised companies to look for those B2B market opportunities for their current B2C products and applications. A doubling of your target markets, which rise and fall under different economic conditions, may present a strong offering to investors.”
She explains the motivation of two investors.
“Scott English from Hearst and Chris Petrovic of GameStop approach their investments as strategic additions to their portfolios, rather than as pure venture investments –even though each has a different priority for these investments,” she explains.
“The first point made was to conduct your due diligence about how strategic investors value their target companies,” Ms. Tamer says. “Hearst, for example, is a later stage investor focused on financial ROI to Hearst first, and strategic value to the portfolio second. GameStop, focused on early stage game companies, values its acquisition targets first as an operational addition to its portfolio plan (does the company add to GameStop’s infrastructure, product mix, learning about new markets, or strategy) before financial and ROI considerations.”
She explains some lessons:
- Do your homework about your company’s “fit” with what an investment group might be seeking.
- Talk with other companies in the investor’s portfolio.
- Narrow down your list and your efforts to those investors that prefer your company’s stage, market sector, and your possible enhancement of their portfolio’s current companies.
- Some strategic and corporate investors function very much like venture capitalists, and others have different priorities. So, after your due diligence, and as you enter discussions, read the deal’s restrictions and the detailed legal conditions before negotiating or accepting any investment.
Critical factors to help you win
“Norm Fogelsong of Institutional Venture Partners, a later-stage venture fund, insisted that your company’s vision must be big, very big, to attract the rounds of capital needed to become a major player,” she points out.
“The panelists agreed that they are very focused on execution, in particular execution on market penetration,” Ms. Tamer advises. “After you have been funded on your product’s unique value, it is time to turn your attention to your market, especially your customer acquisition and retention strategies, tactics and results.”
She provides another insight: “Yoav related that he looked for CEOs with deep market savvy, a founder who knows his or her product and its market realities, and has a strong go-to-market strategy.”
Ms. Tamer shares the insights of Sharon Wienbar of Scale Venture Partners, a later stage investor, who wants to minimize risk three ways:
- Proof of market responsiveness: Does your customer commit to your vision of your product’s value, price and use?
- A business model that prioritizes customer acquisition and retention: Do you have a plan that acquires each new customer quickly and for less and less cost of acquisition?
- Compelling metrics: are your projections for market penetration, growth and profitability backed up by proven metrics?
“So, amid the growing competition for capital we are seeing this year, particularly in the consumer market, investors’ focus seems to move quickly from unique technologies and applications to strong execution,” concludes Ms. Tamer. “Early stage companies need strategies to present compelling offerings to investors, and an increasing focus on market execution that leads to growing a big company and taking significant market share.”
Hope you enjoyed these insights. As usual, Ms. Tamer speaks and writes with authority.
From the Coach’s Corner, here are more of Ms. Tamer’s valuable insights:
- How To Get More Opportunities As A Guest Speaker
- How To Obtain The Most Profit From Speaking Opportunities
- 6 Values for Financial Protection
- Options to Navigate This Marketplace Bedlam
- What Should You Divulge When Asking for Investment Capital?
- Downturn Survival
- Eight Strategies to Consider Before Starting A Tech Business
- What No One Tells You about Raising Investment Capital
“If you can dream it, you can do it.”