Securing venture funding for a startup is a challenging process for a new entrepreneur. With onlyÂ .05 percentÂ of startups funded by VCs, every entrepreneur is likely to experience a healthy dose of rejection. Personal savings followed by friends and family remain the primary sources of seed money for most startups. Raising capital is even more daunting for minority and women entrepreneurs who have fewer financial and personal resources to go. Add to the fact that they are underfunded when it comes to venture capitalists, angel investors, and banks.
For entrepreneurs who believe their bright idea is a non-brainer for investors, Mike Matousek, CEO and co-founder of Boston-basedÂ Flashnotes.com, offers some first-hand advice. He began fundraising for his ed-tech startup, Flashnotes.com, right out of college. He founded the student-to-student study materials marketplace while he was a senior at Kent State University in 2010. Since that time, he has raised more than $11 million in ventureÂ funding. He recentlyÂ closedÂ aÂ Series BÂ roundÂ of fundingÂ forÂ Flashnotes.com, which empowers smart students to make money from their own study material.
Matousek has learned some tough lessons on his own in order toÂ convince a room full of seasoned investors that supporting his idea was in theirÂ best interest. Â “Mistakes like limiting the list of myÂ industry competitors toÂ other small startups rather than the billion-dollar companies in theÂ industry caused investors to question the company’s viability (andÂ earningsÂ potential),” he explains. “They wanted me to prove thatÂ Flashnotes.comÂ would shift the balance,Â rather than create the balance. I even made the mistake of going to aÂ presentation without creating a proper financial model, which led to a ventureÂ capitalist actually getting up and leaving in the middle of my pitch afterÂ declaring, “’I’m onlyÂ looking forÂ home runs.’”
Through all the ups and downs of the fundraisingÂ process, it became clear that with so many great startups, theÂ competition for funding is also greater thanÂ ever, he adds, which means you really needÂ to differentiate yourself. Â Here are his top five ways for preparing to deliver that perfect pitch.
Don’t Be Afraid of the Tough Questions
If you walk out of an investor meeting thinking, “Wow, that was easier than I thought,” chances are that it didn’t go well. Instead, look for VCs who ask the questions that make you sweat–theÂ onesÂ whoÂ keep you up at night. If a VC is truly interested in writing you a big check, the negotiations are going to start right in that first meeting.
Show Them Them Money
When talking with VCs, make sure you target or at least relate your market opportunity to existing dollars. Don’t just rely on being “disruptive” in yourÂ industry–no business can create money out of thin air. Make sure you conveyÂ a clear and scalableÂ forecast of exactly where your dollars are going to be shifting. A thoughtful financial projectionÂ willÂ show how well you understand the opportunity within the market.
Embrace the Competition
Do not be afraid of, or hide from, your competition. Embrace it and use it as a way to prove the market is hot. Target the bigger players in the market too. As much as no one wants to compete head-to-head with the Googles, Facebooks and Microsofts, it is almost worse if these guys have absolutely no interest in your space.
Know Your Audience
Finally, it is very important to have a clear understanding of exactly who you are pitching to. What makes them tick? Before you even walk into a meeting, you should research the answers to questions like, “Are these VCs looking forÂ growth-stage investments?”Â VCs report to limited partners, who are pitched on targeting certain trends (like green, mobile, education, etc). Do your research and make sure you are aligning with these sectors prior to meeting.
A version of this article originally appeared on the BusinessCollective, which is a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses. It was launched in partnership with Citi by the Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs.