(Editor’s note: Richard Brekka is the president of Dolphin Equity Partners. He submitted this story to VentureBeat.)
The numbers are startling. 90 percent of the VCs polled in a recent survey by the National Venture Capital Association predicted that the number of venture capital firms will decline, with 72 percent predicting the industry will shrink between one and 30 percent.
What does this mean for start-ups? In a nutshell: It’s more important than ever to stand out from the crowd – especially if you’re running a technology company. At Dolphin Equity, we receive about 500 business plans per year from technology companies. We tend to invest in about one percent of those.
I’ve been in the investing business for over 20 years. Here are five surefire ways I’ve seen to make your company memorable to a Venture Capitalist:
Explain why your technology is critical for the future – To be driven to invest, I need to believe that a company’s technology will be critical for the future of business and IT. For example, in 2000 we invested in Gomez, Inc., a leader in Web application experience management. We recently sold the company to Compuware for $295 million. Why did we stick with Gomez for so long? Because we believed in the current and future importance of web performance monitoring. Turns out, we were on point.
How is your delivery model relevant today? – With IT budgets fluctuating, a technology’s delivery model is very important. For my investments, the Software-as-a-Service delivery model is a key decision factor. We like to see technology-enabled services in a recurring revenue model. Does the VC you’re pitching have a preferred delivery model or any other key factors that they prefer in investments? It’s worth doing your research before pitching.
Check out the business model of the VC you are pitching – Speaking of research, do some digging around on the VC’s Web site. Are there trends among the companies in its portfolio? Does the firm look for long-term or short-term investments? Does the management of the VC like to help grow the company, or do they expect you to grow the company independent of their assistance?
What is your leadership style? – Some VCs (including us) like to get involved in the leadership of the companies they invest in. Are you open to your VCs input in how to run your company? If you have a proven track record of success and are receptive to changing your business, this opens your company up to a broader range of VCs.
Explain why your company is a must-have vs. a nice-to-have – It’s critical to convey why your technology is in the must-have category for business and IT. In telling the story of your company, do not forget why the target market segment needs your product. While technologies that will continue and grow in popularity are important, VCs are not in the business of anticipating what a market segment may want to buy in the longer term – we want to know what they want right now and will continue to need.
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