It’s a Match! The Perfect Dealflow Strategy for Startups
The world of Venture Capital reflects the economy of any country, it is a market of buyers and sellers. The equilibrium of this ecosystem is given by the intersection of the number of startups raising capital (supply) and the number of funds with capital available to invest (demand).
All entrepreneurs want to solve a problem through technology and innovation and grow their entrepreneurship. During 2020 there were more than 13k startups that raised capital totaling more than USD$210bn. (Crunchbase)
One of the great paradoxes of the Venture Capital ecosystem is how the process of matching between a startup and a VC fund is carried out. Here are the main strategies that VC funds use to create investment opportunities. Any entrepreneur who has exposure to these will increase the probability of success in this great VC market.
-Accelerators: those entrepreneurs who have an idea, but little knowledge related to positioning, growth of a business and the process of raising capital, can access accelerators. These usually have structured programs (batches) where a defined number of entrepreneurs are selected through a pre-established process. During the program, entrepreneurs will have access to knowledge (e.g. business models, capital raising, etc.), mentors to help them solving problems, business networks to develop the venture, and investors from which they can potentially raise capital. At the end of the program, which usually lasts 3–6 months, there is a presentation to investors (demo day) where startups present their business to raise capital and continue growing. Globally, there are more than 7,000 accelerators and incubators (Forbes), being perhaps the most famous Y Combinator, based in Silicon Valley, with two batches a year and approx. 180 startups per batch.
-Research: VC funds have market research processes where they deepen their investment thesis looking for startups that align perfectly. There are multiple databases and specialized publications, for example: CB Insights, Crunchbase, Pitchbook, Lendit, The Spoon, TechCrunch, etc. As an entrepreneur, you could look for your startup to be published in a report, list or publish an article with original content to make yourself known and drive attention for your startup.
-VC Ecosystem: although they say that the world is very small, the VC ecosystem is much more, composed of multiple investors (VC, CVC, LP, Family Offices, etc.), entrepreneurs and connectors such as universities, accelerators, incubators, etc. As an entrepreneur, take the initiative and build your own business network, even when you are not looking to raise capital. Develop constructive relationships seeking win-win positions with a long-term vision.
-Corporate: another channel to develop to make yourself known and get investment is corporations. Through venture builders, innovation labs and CVCs, they participate in the ecosystem by creating companies or as market catalysts. Carrying out a proof of concept, a pilot program, or having a business agreement with a strong, established company can make all the difference for an entrepreneur.
-Associations: each asset class and geography usually has a professional association that brings together specialists in the sector and seeks to generate business opportunities for them. For example, ILPA groups LPs, other associations group VC funds, such as NVCA in the US, LAVCA in Latam, IVCA in India, Abvcap in Brazil, GCV globally for corporate funds, etc. Become a member of the associations that fit your profile or participate in their events to have access to these groups.
-Commerce agencies and industrial chambers: countries proactively promote the development of their startups through fairs, events, publications, trade agreements, etc. Some examples are Israel Trade, Apex (Brazil), ProChile, ProColombia, Invest HK (Hong Kong), etc.
-Universities: they are a hotbed of talent, innovation and technological development. Many universities have incubation programs, acceleration, promotion of startups, even promoting minorities or social enterprises (MIT Solve, Berkeley SkyDeck, Stanford Venture Studio, etc.) As an entrepreneur you can access them to acquire talent or investors.
-Events: all geographies and industrial sectors hold multiple events a year. As an entrepreneur, define the key events for you to attend and much better if you receive an invitation to be a panelist or speaker. You can also pay to be an exhibitor at the event (less recommended).
-References: perhaps the most relevant element to meet investors is through references. Take advantage of all your networks, such as bankers, consultants, tax attorneys, entrepreneurs and other investors to grow your network of investors. In addition, referrals can be a great differentiating factor when raising capital. It’s not just about meeting more people but cultivating the relationships you already have.
A startup is a seed that is harvested with the expectation of bearing fruit at some point. To see that fruit, it must land on fertile ground and receive constant care and attention, otherwise it dies.
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Gonzalo Soriano. Investment analyst at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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