How To Know If Your Business Is Right for Venture Capital

Hi, I'm Sarah Kunst. I'm the Managing Director of Clio Capital. Raising money isn't for every business. How do you know if your business is the right fit for venture capital? You know, one way to think about it is, can your business scale? So if you are a lawyer or a doctor or a physical therapist or yoga teacher, meaning you have to be with your clients Right, in order to work, you might not have a scalable business. You might have a really amazing, awesome business that just doesn't really need venture capital to get a lot bigger because you can grow based on your revenue. And the good news is you get to own 100% of your company. So if you're building a business where there's a lot of tech involved and you're gonna build it and then it can be used by, you know, hundreds of thousands or even millions or billions of people, that's a scalable venture-backable business. Getting funding starts with understanding Understanding what you need. How much money do you need, and what are you gonna use it for? One way to start thinking through this is to look at your cost. One rule of thumb is that you should generally assume that at scale, right, when you have full-time employees, it's gonna cost you about $10,000 a person a month. And that's, you know, rent, that is health insurance, and salary. It might be a little bit more, a little bit less, depending on where you live. And so you wanna raise enough money that you can run the business, ideally for 12 to 18 months before you need to raise again. And that's a great way to think about how much money you'll need to do that. Getting funding comes from having an amazing vision about what you're building and sharing that with others. So then the question is, how do you share that, right? One, you need to know why you're building your business. What drives you? What makes you passionate about what you're doing? And why does the world need it? Ideally, you want to be building a business in a space that has a massive market share. And so when you find a space that you're passionate about and the market's huge, then you know that, you know, your vision and the ability to make money are probably gonna combine in a way that really resonates. Getting funding isn't just about the money. When you're raising money, you're selling a piece of your company, right? This isn't like a loan. That person or that fund who's investing, they become a co-owner in your business. So, it really, really, really matters who you choose. That being said, even more importantly than who you choose is making sure that you're signing a contract that you can live with no matter what happens to your relationship with the person who's investing. In a perfect world, you get to pick your investor, and it's somebody who shares your vision and who has a ton of money to give you with really, really good contract terms. That doesn't always happen. So the thing to try to keep in mind is how to make sure that your terms are as clean as possible. And when I say clean, which is what we say in venture, it means that you want your contract to be pretty unremarkable. You don't want any surprises or anything crazy in there. There are 2 resources that most early-stage companies can kind of look at as a guide when they start to think about raising money. One is called a SAFE, a Simple Agreement for Future Equity. The other is called a convertible note. They're They're each about 2 pages long, and they're just really simple, clean, easy terms that are fair to both you and the investor. So while you want people who you really, really love to give you money, you also want to make sure that even if you fall out of love, the contract keeps you safe. Raising money, really, if you already have customers, if you already have revenue, brand love can be a big part of it. You have, you know, user reviews that are amazing, you have people who are repeat buyers getting their friends and family to buy, that really shows investors that you're building something special. And it's not just that you, you know, put up enough advertising that you got somebody to buy from you once and then they never come back. And then the other piece of it is if you're selling some really high-value items, right? If you have customers who are spending thousands of dollars with you at a time on a regular basis, those customers actually might be able to invest in you themselves. But even more so, for most people, brand love translates into investment because it lets your investors know that you have a real loyal customer base who keeps coming back to you time and time again. Like most things in the world, sometimes there is bias when it comes to investing and building your company. We know that women and people of color are generally not given as much investment, and that's really frustrating. And, you know, the way that I think about it, because it's something that I face as well as an investor who has to raise money from people, is I acknowledge it. Yes, there is bias sometimes, and it can feel like there's bias most of the time, but I don't let that sort of control me. I acknowledge it, and I kind of compartmentalize it, and I put it to the side, and I focus on doing my job. Because the reality is, sometimes, you know, if you're faced with bias, you might have to be way better, you might have to work way harder, and it's frustrating that you have that additional barrier. But then once you're on the other Right. Because it's really a numbers game, and the more investors you pitch— it's normal to pitch at least 100 investors. If you've only pitched 50 investors and you haven't had anybody say yes, don't worry about it, keep going. People sometimes have to pitch 300 investors to raise their first round of funding. So stay focused, but keep in mind that when you're on the other side, then you're also going to be better, and you're going to have worked harder, and you're going to have more experience, and those are things that are good.