Written By: Marc Halpin
Raise your seed round by focusing on Jockeys, Dogs, and Unicorns
Over the next 12 months at Kerosene, we will introduce over 350 startups to approximately 400 North American VCs. With such a substantial number of introductions, it becomes relatively straightforward to see patterns developing, in fact they jump out at you!
With a singular focus on “connecting great founders with great investors” we get a lot of direct and indirect feedback around startup fundability. In this post, we’ll delve into the key factors that emerge when VCs evaluate startups raising capital in the $1 million to $10 million range, from Series Seed to Series A.
Based on the feedback we receive, 90% of the capital-raising process boils down to just three critical elements. Despite the myriad of activities involved in pitching a startup, all the preparation, analysis, and excitement, most of the time these 3 points are the make or break of a fundraise.
Pens and paper at the ready here we go!
JOCKEYS: You may have heard the notion that jockeys (founders) are more important than horses (businesses), but probably not as feedback from VCs on why they passed (it’s a little sensitive!). The foremost focus for VCs is the team running the startup. Are you and your team the best ‘jockeys’ to execute your business idea in your space? While you may argue that the business idea itself is crucial, consider this: would Elon Musk face challenges raising money to compete with Starbucks selling coffee or Sony selling TVs? I think we’d agree he’d be just fine raising!
VCs need to believe that you and your team are exceptional and present a formidable force in your industry. Convey your team’s greatness convincingly, and you’ll likely secure your funding.
TEAM IS CRITICAL
DOGS: Over a decade ago during my first venture capital pitch in Chicago, the leader of the angel group made a memorable statement: “Let’s go for it, the dogs are eating the dog food.”
The second element VCs love is a growing customer base or, in other words, “dogs eating the dog food.” Demonstrating that customers are increasingly buying your product is a critical aspect that ranks among the top three investment criteria.
TRACTION IS CRITICAL
UNICORNS: At Kerosene, we collaborate with two types of VCs: those with a conservative approach seeking higher success rates and lower returns per deal, and the majority who are on the lookout for “knock it out of the park – Bases loaded – Grand Slam – Billion Dollar Unicorns!”
To be able to be a unicorn you could argue that you have to generate $100M in revenue based on a 10x valuation multiple. And let’s say you command 10% of a given market. You must have a S.O.M. of $1B as a minimum. A big market is the third and most discussed issue around startup fundability. This one is worth doing a lot of evidencing in your data room!
TAM IS CRITICAL
In conclusion, 90% of your success or failure in raising venture capital hinges on the 3 T’s.
TEAM
TRACTION
TAM
Now you know that you know where to direct your focus!
Kerosene Ventures: Connecting Great Founders with Great Investors