It must be an interesting career as a venture capitalist, investing, selling and trading in start-ups. Trying to determine which companies will become the next Google or Facebook, working with inventors and accelerators, looking for a great idea and buying in before the big spark which will take a company into the stratosphere. What do they look for? How do some people have this innate ability to discern so effectively the criteria for business success and how much of it one company has over the next? All good questions, but what if the system was backwards?
Incubators And Accelerators
The Startup community is all too familiar with the concept of an accelerator, also called an incubator. They develop business models that seem promising and have a cogent value proposition. They provide materials, training, mentoring and often time a work-space. This gives a platform for development which leads to, idealistically, a successful launch. Also, it provides a method for qualifying companies for venture capitalists to invest in. When these companies start to acquire customers and have a projection for profitability within a reasonable amount of time, venture capitalists will offer to buy shares at the current valuation. Which is a conundrum, as that transaction determines the valuation as well as remaining shares value. So a purchase of 10% of a company’s shares for one million dollars would set the remaining shares to 9 million dollars and the total overall valuation of the company to be 10 million dollars. The start-up would then have the capital to build out its needed infrastructure, and the venture capitalist has shares which they believe will increase in value. This is known as Series A. It’s a risk for a venture capitalist to give a million dollars, or any amount of money for that matter, which they may or may not ever see a return on. Especially when so many startups statistically fail. So, I ask again, what if there was a better way.
Drive To Market
Looking at some of the most gleaming issues which spell disaster for a young company, all too often the marketing efforts are to blame and not a single Ivy educated expert has properly identified this massive hole in their game. Without a comprehensive marketing strategy to reach out to the target market while creating original content describing the unique solution the start-ups value proposition directly addresses, is like fishing for marlin in the top of a tree. When considering the staggering difference between the successes of start-ups that market effectively versus those that don’t. It should be no surprise that between 60%-90% fail and return almost nothing to their venture investor. So, what if the system was run in reverse and the marketing was done properly and before the big investment?
Bolstered Valuation
The reoccurring question here is why don’t the venture capitalists’ invest directly into marketing for a start-up which is already showing strong indicators for success? Avoid throwing millions dollars into the air with nothing but faulty metrics, a letter of intent and an edgy slogan to assure that they will see a return on their investment. Before investing mass amounts of wealth into risky ventures, build a prolific marketing presence with branding, a website, graphics, blogs, social media, short video, outbound teleprospecting, and a comprehensive automation like Hubspot to track and nurture leads in the funnel. Reaching out to a broad community, and increasing awareness, interest and recognition will truly determine if a company is worth its salt. One can only imagine the great tales with success of brilliant inventions that never had a real opportunity to demonstrate what they were capable of, nor would their investor’s faith ever be properly appreciated as it should, by being payed dividends with interest.
In Conclusion
Venture capitalists need to become seasoned marketers, today. Spend fifty or a hundred thousand dollars to scaffold every area of a start-up’s marketing presence in exchange for ‘Series A’ warrants, and if they launch successfully and hit the price point in valuation, they would have spent 0.1% of the likely investment to ensure they have the right to buy later, and at a discount. It makes sense. Venture capitalists are business savvy and often time lucrative philanthropists. If acumen in marketing was added and applied to a modified approach with bold, aggressive and distinct marketing tactics for the start-ups which were first developed and qualified by an incubator, the sky would not be the limit; it would be the starting point.
