Don’t approach funders until you have these three things

You’re sitting across the table from some potential funders who are intrigued enough by your business plan to hear more. Now you just have to wow them with a great pitch, right?

Not so fast. Andrew Schoen, a venture capitalist at D.C.-based New Enterprise Associates, says that’s just one of the many things you should be thinking about.

“Of course it’s important to have a great pitch, be eloquent and communicate a compelling story when sitting down with investors,” says Schoen. “But equally, if not more, important is how the table is set and how you stack the deck in your favor before sitting down with VCs. The circumstances, timing, quality of introduction, and the context of what is happening outside of the table will dramatically influence the dialogue that takes place at the table.”

Schoen and other funders we spoke with say what they look for in both early and later stage companies are three things: team chemistry, timing in the market, and product strategy.

Team chemistry

For early stage companies, you don’t have a proven track record. What venture capitalists are investing in is your team and the strength and skills they possess. The product is subject to change, so they’re not focused on that as much.

Schoen says he’s been involved in investments where a company went from being an on-demand consumer app to selling enterprise software computer vision technology. It was a dramatic pivot, but because of the team dynamic and chemistry, the company pulled it off. He noted the team was sharp, flexible and able to identify where their greatest market strengths lie early on.

Later stage companies have much more difficulty getting a team to pivot from a product or idea. That’s why when the team is small, the chemistry is crucial to steering a startup in the right direction.

Timing in the market

Even if you have the most amazing team with plenty of expertise in your particular industry, if the market isn’t right it’s tough to survive. So investors are also weighing the demand for the product or service you’re offering.

VCs will want to know that you already have people who are interested in investing or have already invested in your product idea. If you’re looking to develop a new medical device in the healthcare industry, find a doctor who would be willing to back your product. If you can’t find a single customer willing to invest in your product, that’s a warning sign that you won’t be able to find customers after you build it.

WeWork Charging Bull member Jose Cayasso, founder of a presentation software called Slidebean, says that timing was everything for his startup. After going through the accelerator 500 Startups, he decided that the timing was right to go to investors.

“We would work 12 hours a day,” Cayasso says. “We hacked our way through our revenue just to survive, and our investors appreciated that.”

Product strategy

When you have a strong team and proven market demand, your strategy for adjusting pricing or expanding a product line is the third most important factor funders will be evaluating. VCs want to know that you have a roadmap in place for future growth and expansion.

But even if you have a great product strategy, experts say that not every VC is the right one for you. When you do your research, consider what types of companies are already in their portfolios.

“It’s a lot of legwork to figure out the people you really want to pitch to,” says Scott Switzer, co-founder of the advertising tech company Authenticated Digital. “A lot of that may be going out and having coffee and talking about where the VCs’ company is and what they’re looking to invest in. Some VCs don’t want to invest in competitors if they are invested in one specific niche company already.”

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