Things are looking pretty bleak for startups trying to raise seed and A-round funding. A quick Google search reveals articles by ex-VCs entitled “Why 99.95 Percent Of Entrepreneurs Should Stop Wasting Time Seeking Venture Capital” and reports of an “A-round crunch”.
Even in Silicon Valley, which was previously a global hotspot for VC funding activity, VCs are battening down the hatches to prepare for a storm. Even though Silicon Valley VCs have raised a huge amount of money — roughly $13 billion in the first quarter of 2016 alone — very little of this will trickle down to up and coming startups any time soon.
Related: Seeking Venture Capital? This T.I.P. — a Team, an Idea and a Plan — Is Crucial to Follow.
But rather than hanging their heads in defeat and dusting off the personal phonebooks for a number of uncomfortable calls, how can startups be proactive in preparing themselves for a tough VC climate and improve their chances of walking away with a slice of the increasingly small funding pie? I asked industry leaders who work closely with startups in Silicon Valley and further afield for their opinions.
It’s about who you know and who knows you.
Networking is an integral part of building a startup in busy ecosystems like Silicon Valley, but less so in more ‘conservative’ business cultures in Europe. To get their name out there, up-and-coming entrepreneurs in the Bay Area need to jump into the startup community with two feet. Through attending events, speaking at conferences and workshops, mentoring, contributing thought leadership articles, and getting involved in accelerators and incubator programs, startup leaders can widen their networks, and in doing so increase their circle of influence.
However, even in the busiest startup ecosystems, searching for funding for your company is becoming increasingly proactive.
“In the Valley, you need to adopt a ‘village mentality’. This means contributing regularly, making connections, doing favors, getting involved, and generally giving more than you take if you want to be noticed by the right people.” said Dea Wilson, esteemed Silicon Valley networker and founder of Lithograph.
2015 saw the highest level of VC funding since the dot com boom, with more than $27.35 billion invested on private companies in the Bay Area alone. But good things don’t last forever, and funding tapered off over the last three months of the year, suggesting investors were getting cold feet about investing in startups.
Consequently, if you want to sit around and wait for a VC to approach you, you had better have a comfy chair and “The Walking Dead” levels of supplies in your office, as you are going to be there for the long haul. Thanks to the funding dearth, VCs are being bombarded with pitches and decks so it’s up to you to get yours in front of the right people and make your company stand out from the crowd.
“You have to go out and get the investment capital, investments are sold not bought so startups need to pound the pavement and make the sale. Raising capital is probably the hardest part of being a startup,” says Matt Zito, founder of Travel Startup Incubator.
One way to make your pitch stand out from the towering pile is by leaning on personal contacts to get a “warm introduction,” a recommendation from a respected and well-known contact, a VC, CEO or angel investor. This is a benefit of working as part of an accelerator program, which are normally founded and coordinated by veteran entrepreneurs, who over the years are likely to have amassed a “Golden Phonebook” of valuable VC contacts. According to CBS Insights, approximately 35 percent of startups who go through accelerators raise funding when they “graduate.”
If you have friends in high…