If there is any way you can get by without venture capital, avoid getting into this game. It is terribly expensive, both in terms of your time and effort required, as well as interest rate – many investors seek returns of 100x their money and more.
But many businesses cannot be built without. Read here how to obtain VC in Silicon Valley.
The following is written for the 95% of startups that do not already have excellent connections, do not represent well-know entities, and have no other dramatic shortcut to investors. It assumes all you have is your venture and team and the money is not coming towards you inevitably.
Beware if you are not from SV
If you turn to Silicon Valley from elsewhere for funding, here is the deal: if you satisfy several preconditions, it is a lot easier to get funded here than anywhere else in the world. However, it will also be a lot more expensive to run the process, due to the necessity of being present in the valley for 6-12 months and the high cost of living there. And still no guarantee. It will only make sense if local business development has significant potential for your business and is part of your SV effort.
Q1 2016 funding environment in SV
The numbers and text associated with the stages vary over time, and can even change significantly from one quarter to the next, due to changing investor sentiment (which translates into „what is everybody else doing right now“, aka „herd instinct“).
Money still keeps pouring in. The VC money pipeline driven by LPs (the investors of VC firms) is healthy, and the amount of non-VC money is still on the rise – and could make another jump as crowdfunding doors are opened in March. Thus, the money is there – in principle. But later-stage valuations are dropping in order to adjust to the public market situation, and there is an ongoing Series-A crunch with a lot more worthy contenders than investors around. Investors become more cautious, thus valuation levels will rather come down, the process may take longer, and more safeguarding will show up. If you want to digg deaper, here some readings:
Venture Capital 2016 – Some Upfront Views (Slideshare presentation)
Prerequisites for successfully raising money in SV
At the least, in order to get VC interest in SV you need:
- a huge (and ideally growing) market (to be precise: better $100bn+ than $1bn+)
- a game changing insight that allows you to break into that market
- an „unfair“ advantage – something that cannot by easily copied or bought (rare critical know-how/expertise, business connections, proprietary data, etc.)
Sentiment rules. There may be a several months interval where it is almost easy to find someone looking at and investing in your venture. Exactly the same effort on your side may result in little interest and reaction a few months before or after that interval, depending on external circumstances. Sure, a top team and proposition will prevail, but the difficultly level – and thus time required – shifts, and almost unpredictably so. It comes down to knowing which investors are looking for what when.
What’s really hot in the Valley right now? (no claim for completeness)
- augmented reality/virtual reality (peak has passed)
- e-healthcare (peak has passed)
- autonomous vehicles
- (intelligent) robotics
- meaningful applications of AI
Plan of action
You are on the ground in SV, now what?