What do venture capitalists want? An insider’s perspective

What do venture capitalists want? An insider’s perspective

As the 2013-2014 series of Entrepreneurship 101 nears its end, the topic of discussion is one that many entrepreneurs have been waiting for: money.

Last week, MaRS welcomed Shirley Speakman, partner at Cycle Capital Management, to share an insider’s perspective on what venture capitalists (VCs) are looking for. As a VC herself, Shirley has great insights to share with entrepreneurs who are looking to gain outside investment.

Build a relationship

As an entrepreneur, you have something in common with VCs: you both want money. The difference is that VCs are looking for big money, sometimes as much as 12 times return on their investment. As you can imagine, it is a difficult task to find a company that can deliver on that goal. As a result, it’s important to stand out and give the VC confidence to invest by delivering on your milestones.

But this trust goes both ways. As an entrepreneur, you should take the time to research and truly get to know your potential investors, as the relationships you build with them will be long-term ones.  A realistic expectation is that you will meet with a VC for six to nine months before an initial investment is made. Use this time to not only prove yourself, but to also do due diligence on your potential investor, researching his or her past deals and life-cycle stage.

The term sheet

If a VC decides to invest in you, he or she will create a term sheet, a non-binding document outlining the details of the investment deal. The terms and conditions in this document will require negotiation between you and the investor, particularly on the company’s valuation.

Keep in mind that negotiating a term sheet is part of a VC’s due diligence. He or she will be assessing how well you work together, so it is helpful to be knowledgeable about each clause on the term sheet.

Shirley provided a list of components that will impact your company’s valuation, including rationalized revenue forecast and financing strategy, as well as 11 common clauses you may come across in your term sheet.

To learn about these clauses in detail and about how they will impact investment in your company, view Shirley’s full presentation here.

Raising money from venture capitalists – Entrepreneurship 101 2013/14 from MaRS Discovery District on Vimeo.

Next lecture: 360 Panel on Venture Capital Funding on April 30, 2014


Want to connect?