A lack of local capital. That’s one of the most common challenges that we hear from accelerator operators (and founders) in nascent startup ecosystems around the world.
In reality, when we dig deeper, in the vast majority of those ecosystems the challenge is not a lack of local capital. The capital is there, it’s just not funding enough local startups.
As an accelerator operator, here are three things that you can start doing today to galvanize local investors and attract more capital for your founders:
- Help your founders meet the new standard of investor-readiness;
- Align with venture investors by understanding what venture capital is, how it behaves and what it expects of your founders; and
- Motivate local traditional investors to invest by delivering reliable investable insights.
The New Standard of Investor-Readiness
First and foremost, you need to make sure that you are preparing your founders to meet the new standard of investor-readiness. A standard that requires more than pitch deck and demo day preparation and data room hygiene.
The new standard of investor-readiness requires more than just revenue; it requires that your founders show that their early revenue is the direct result of a systematic go-to-market strategy.
Helping your founders meet the new standard of investor-readiness is table stakes.
That’s why we published this guide to help acclimate you to this new standard and outline the steps you can start taking today to make sure your founders are prepared.
Align with Venture Capital
Venture capital is only one form of capital to help accelerate the growth of your startups. In fact, there is a growing trend among founders to seek out sources of capital beyond traditional venture capital.
One example that is growing in popularity is revenue-based, non-dilutive capital, such as the funding products offered by Novel Capital.
But, venture capital remains the predominant source of startup funding sought by your founders.
That means that you not only need to graduate investment-ready startups, those startups must also be venture capable.
Familiarizing yourself with the characteristics of venture capital is the key to understanding what we VCs consider to be “venture capable.”
By understanding the meaning of venture capable, you bring your goals, your startups’ goals and the goals of venture investors into alignment.
Your startups are the lifeblood of our venture capital fund! That’s why I’ve put together this comprehensive video mini-course to walk you (and your founders) through – in plain-English – all the foundational knowledge you need about venture capital.
In the mini-course, I cover:
- What actually is venture capital – and what do venture capitalists expect?
- The three major ways to raise venture capital (equity, convertible debt, and convertible equity), along with the advantages and disadvantages of each.
- How to negotiate the best deal when raising venture capital.
- How to build, model, and manage a cap table to avoid BIG common mistakes made by founders (including a simple, downloadable cap table tool).
- How to apply all of this knowledge to build a business that VCs want to invest in.
The mini-course is great foundational knowledge to help you better understand the venture capital asset class so that you can relate to and attract more investors in your community. But, it’s just the tip of the iceberg.
To help you and your founders build your confidence around venture capital and empower you to galvanize the local investor community, I volunteer my time to run venture capital workshops. You can request a workshop by submitting a speaker request form here.
Motivate Local Traditional Investors
In addition to professional venture investors – which you may not have much of in your local ecosystem – traditional wealth investors can be an important source of early-stage capital for your founders.
It’s part of that “lack of capital” challenge we regularly hear from accelerator operators and founders. There’s wealth in the community but it’s not investing enough into local startups.
In our experience around the world, the primary reason for the disconnect between your founders and traditional local investors is that those investors, who are relatively unfamiliar with high-growth startups, are unimpressed by the theater of demo day and are underwhelmed by the top-down view of a pitch deck that is overweighted with product features and functions at the expense of any identifiable market need.
Just put yourself in their shoes for a moment and compare a demo day and startup pitch deck with the due diligence details and investment analysis found in a private placement memorandum or prospectus they are accustomed to receiving from their stock and real estate investment brokers.
Your local investors are not immune to the money being made from Unicorns. But they are not attracted to invest with only a good story, pitched well.
One of the benefits of helping your founders meet the new standard of investor-readiness by following a systematic go-to-market approach is that your founders will naturally be creating due diligence materials that your traditional local investors consider to be a reliable form of investable insights.
Additionally, your founders will be prepared to not only extol the virtues of their innovative product and show off a top-down view of their Total Addressable Market (with lots of trailing zeros).
They will also be fully prepared to clearly and effectively communicate a data-informed customer development and revenue growth hypothesis.
In other words, they will be prepared to speak in the language of your local investment community and present an attractive investment opportunity.
Regardless of where you operate your accelerator, it’s more likely than not that there is capital available to invest into your startups. That may be venture capital and/or traditional wealth investors.
Regardless, as an accelerator operator, you’re in a great position to address the perceived lack-of-capital problem in your ecosystem. After all, you’re producing the “product” that investors are looking to “buy.”