Why Venture Capital Rounds Fall Through

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Raising capital for your company can be a difficult and time-consuming proposition, and it can be especially confounding when your firm is not able to pass through the various rounds to obtain that coveted support. Arming yourself with knowledge is the best way to ensure that you’re adequately prepared to meet the specifications that investors are most looking for.

This cannot be overstated, as competition for funds is often fierce, and the future of your brand can depend largely on your success in this realm. Below, are some of the more common reasons that your bid for obtaining venture capital can be declined.

You’re Not In Alignment With The Investor’s Line Of Expertise

The very first bit of homework that a company must do is to determine which part of the process a venture capitalist is most interested in partnering. Various stages of development can differ, and to this end, particular investors may choose to focus on operations that are in the early-stage seed phase, for example.

Businesses can lose valuable resources, such as time and money, when approaching those investors whose interests do not closely mirror their arc. Some financial institutions will also choose to work with operations within certain sectors, for example, real estate development, biotech, or electronics, and in these cases, you should be able to discern right away if your product or service will be a match.

Rushing

The old adage that haste makes waste is often painfully true in the world of venture capitalism. Your first steps can sometimes be bungled when approaching a venture capitalist with whom there is not a solid relationship or connection that can facilitate the meeting, such as a mutual business associate or a lawyer. It is vital that you take steps to ensure a warm introduction to those with whom you would like to work.

Your elevator pitch must be perfected at this point, and you would do well to be intrinsically familiar with the target audience and the specific approach to solving their problem. Your pitch deck must be thorough, and it helps considerably to have an experienced set of eyes to oversee its creation.

You must also be prepared to spend the time that it takes to craft legal documents and for both sides to meet with their attorneys. Shoddy work at this juncture can make a round of the venture capital process fall flat, leaving you at square one once again.

Disagreement Over Items In The Venture Capital Term Sheet

A firm’s term sheet is a document that will contain the essential blueprint for which all activity thereafter will be largely determined. Oftentimes, a business will skimp on the details in this instrument, a decision that can backfire, disrupting the venture capital relationship.

Term sheets are generally prepared as a signal that a backer is serious about the potential investment, and this is done after approval from the pertinent committees has been secured. In many cases, these documents do receive final ratification from the venture capitalist, and as such, their importance cannot be underestimated.

The valuation of the company is a key element of consideration, as this will determine the dilution relegated to the entrepreneur. Other components, such as the construction of the Board of Directors and their various rights will be up for discussion. It’s common practice to list the most important conditions in this paper and to leave smaller details up to interpretation later on. Nevertheless, this document can have a make it or break it effect, and all aspects of its contents must be considered with extreme care.

AI Capital Advisors has experience providing startups with the oversight needed to increase their valuations through the creation of superior presentations, financial models, and capital raise structure. Contact us today to learn more about the services we offer, and we look forward to working with you.