Redmart Chief Information Officer Jon Sugihara shared insights in fundraising with the JFDI 2015A Accelerate batch. “First, you need to understand the VC from their point of view,” says Sugihara. “They want a couple of home runs.” These were the things he learned from raising and talking to many venture capitalists through the years, writes Crystal Neri
The value of an accelerator like JFDI.Asia comes from its mentors. Pictured is Jon Sugihara hosting JFDI 2015A Demo Day
From an investor’s perspective, these are the questions they’ll raise as you pitch your deck:
1. “How will you make money?”
You start by building a model that makes it possible for a $100 million revenue. Remember, VCs invest in a number of companies and they want a couple of those to become billion dollar companies. That’s what makes their fund. Many companies pitch that they will focus on growing their user base first and then figure out a revenue model. It’s not about having a fundamental strategy, you just need to show that you put some thought into models that could potentially make you money.
2. “What is the valuable problem you’re solving? And have you validated it?”
VCs want to see if there is a huge market potential or a pressing problem everyone wants fixed. Sugihara says, “This is not just specific to Singapore, but most ‘entrepreneurs’ I meet here are engineers and not entrepreneurs. The mentality is ‘if they build it, they would come.’” He added, “Over and over when I talk to entrepreneurs and especially when I’m hiring for a product manager position, I ask: ‘What was the reason why your business failed and what would you do differently?’ Almost all of them said variations of “I didn’t realize nobody wanted it.”
For example, if you’re doing restaurant startup, you must ask restaurant owners and know for sure that’s their problem 99% of the time. VCs will ask how much progress you’ve made along these lines. They’ll want to know if you’re capable of identifying the “right” opportunity in a sea of opportunities.
3. “Who’s in your team?”
Teams are important because six months after getting funded and building a company, the business is going to look very different from when it started. “VCs want to know if you and your team is capable of identifying a world of opportunities and chase after it,” Sugihara said, “but not naive enough to lose focus to know if that should be worth it or an obstacle.”
4. “What’s your thought process?”
“As we spoke to customers, we realised that the real problem they were facing was X, so we pivoted to focus on this solution and it resulted in a lift in sales.” Those are the kinds of things VCs want to hear – your thought processes and your execution in the business. More than market size, trajectory, or user base, it’s important for them to see how well you’re going to do as a team. Explain what you’ve done so far and how you did it. Highlight your process; they don’t want you to be shot running.
5. “Do you know all the terms in a typical term sheet?”
When you’re in a meeting with VCs, know the vocabulary. They will throw things at you like pre-emptive rights and non-standard term sheets. So do your research on what terms are good for the founder and what are good for the investor. Sugihara adds, “Your contracts can sometimes be the basis of all future contracts, so you really have to understand what you’re agreeing to.”
Finally, as a founder you must be realistic in your fundraising expectations. VC’s won’t spend a lot of time with you outside the board room. A true strategic investor will open up access to a network you need. This world is all about making deals, so know for sure how your investor is perceived in the VC realm. And lastly, Sugihara added, “Ask questions. Get a sense if this guy is actually going to care about you.”
Crystal Neri writes content and handles social media at JFDI Asia. Say Hi to her on Twitter, @nericrystal.