On Friday in Silicon Valley, I emcee'd the finale of BlogHer BET, a confab about Business, Entrepreneurism and Technology. One of my panelists was Janet Riccio, an EVP at Omnicom Group (OMC), who came on stage with 10 tips for raising start-up money. Riccio had gotten the list of tips from an entrepreneur she knows: Communispace CEO Diane Hessan, who agreed last month to sell her company to Omnicom for more than $100 million.
Riccio connected me with Hessan -- whom I knew years ago, long before Communispace's business of helping companies on the social media front was anyone's business at all. Hessan shared her 10 tips with me, and I'm sharing with you. -- Patricia Sellers
1. Venture capitalists are human. They like to invest in people they know…or in people their friends know. Thus, if you have no relationship with them, you are a mere business plan from a stranger. Work your network! You can get an audience with a referral, but it's really a long shot to go in cold.
2. Expect rejection. Most people I know had to speak with a dozen VCs before they got any traction -- and many had to do more than that. You are not going to fit with everyone. So, if you have a biotech start-up, find out who the people are who like your space.
3. Net it out. A long, boring Powerpoint presentation doesn't get anyone excited these days. That goes for VCs, too. The best presentations start with a slide that says, "Here are the eight things that I want you to walk away with." Everything else is "appendix."
4. Ask for candid feedback. When a VC says that they are not interested, they will most likely give you a standard answer like: "This is just not the kind of company that we invest in." Politely push for a reason why. Tell them you aren't trying to change their mind, but that you just want to learn. They might then say, "Well, I just don't see how the business is scalable." Then you can probe and learn more about how to improve your business case.
5. Don't assume it's a problem that you are a woman. So many women come to me complaining about "discrimination against women." Then I look at their business plan and it's awful! Don't learn the wrong lesson.
6. Don't be humble. Most VCs want to make at least five times their money in a five- to 10-year span. If you are asking for $5 million and you have a business plan that shows that you canmaybe get to $10 million in revenue over 10 years, guess what? It doesn't matter what you have worn to the meeting. Be brave and bold! Men will say, "I know that this is a competitive space, but we believe that we can own it and do $1 billion in sales by 2014." This is what you are competing with.
7. Get help. If you're in a major metropolitan area (especially Boston and NYC) there are tons of networks for entrepreneurs where you can get help and mentoring from experienced people -- for free. There are incubators with free office space, competitions (a great one is Mass Challenge) and lots of successful entrepreneurs who are ready to assist.
8. Think as hard about your business model as your idea. You might have a great idea, but if you can't demonstrate how you will make money, it doesn't matter. Sure, Twitter didn't have that figured out yet, but you are most likely not Twitter.
9. Distinguish between angel money and venture capital. The former can be an individual or a group of people who like you and your idea and want to help you take it to the next level: to pilot your idea, to test the waters, to build out your software, or the like. Venture investors are more serious and you need to be further along. Most venture funding (otherwise called "institutional funding") want to see proof of concept, customer acceptance and more.
10. Be confident! Don't apologize for your shortcomings. Emphasize the excitement around your prospective business and be ready to say how you will overcome obstacles. If you haven't been a CEO before, show them your advisory board and the rest of your management team who will complement you.
Go for it! The worst thing that happens is that you have to find a job.
Diane Hessan is President and CEO of Communispace, a market research and social media company with clients including Kraft Foods (KFT), PepsiCo (PEP), Best Buy (BBY), Hewlett Packard (HPQ), Fedex (FDX) and Charles Schwab (SCHW). A pioneer in creating online communities to help marketers gain consumer insights, Hessan co-founded Communispace in 1999. Diane has spent her 30-year career helping companies become customer-focused -- as an executive and as co-author of the best-seller Customer-Centered Growth: Five Strategies for Building Competitive Advantage.
