With more than 25 years of experience reviewing and investing in early-stage business opportunities, Dalvey usually knows within minutes whether to continue talking with the founder of a new company. His first and most important screen is assessing the entrepreneur’s talent, passion, discipline and experience in realizing his or her vision.
“Ninety percent of my decision to move forward is based on the person and the team,” Dalvey says.
He invests “in people, not business plans,” and looks at three primary areas: the entrepreneur’s vision and track record in business, especially in working for or starting other new companies; the market need the new company proposes to fulfill; and the size of the potential market it intends to enter.
From there, he considers the story of the business opportunity the entrepreneur presents.
“It quickly boils down to one question in my mind: ‘Who cares?’” More specifically, he asks, “Who will actually buy the product or service ultimately offered, and why?”
Dalvey’s firm manages a $100 million venture fund that focuses primarily on high-tech and life-sciences companies specializing in data storage, virtual reality and augmented reality, enterprise security, regenerative medicine and a variety of other fast-growing industries.
Brightstone is one of approximately 750 active venture-capital firms in the United States which completed a combined total of 8,948 deals in 2018, investing more than $130.9 billion into privately held companies, according to PitchBook-NVCA Venture Monitor. Brightstone typically invests between $1 million and $5 million into an early-stage company.
Why the business exists
To continue growing, many businesses need to raise capital at some point. After appealing to friends, family and wealthy individuals known as “angel investors,” entrepreneurs often turn to venture capital firms such as Brightstone.
For many new companies, obtaining an investment from a venture capital firm with a strong track record is the first “big sale” that demonstrates the value they propose to create. A successful pitch can make all the difference in attracting future investments. More important, it shows the entrepreneur’s ability to present a compelling story that will appeal to customers.
Whether a startup company is still an idea scribbled on a napkin or already an organized group of people ready to change the world, its founder must have the business’s story down cold, Dalvey emphasizes. Questions he typically asks entrepreneurs seeking venture capital include:
- Why did you start this business?
- What problem are you trying to solve?
- What is your unique solution to this problem?
- Who will your customers be?
- Who are your competitors?
Many startups simply send potential investors information and hope they’ll respond with a check. Instead, Dalvey suggests preparing a one- or two-page executive summary that addresses the aforementioned points. After an entrepreneur has received initial interest from an investor, he or she should have a follow-up conversation and give crisp, clear answers to these questions, demonstrating a command of the business.
By contrast, an entrepreneur who responds with “I don’t know” or, “I didn’t do the projections” will not impress investors. Making up an answer that is obviously wrong is even worse. Entrepreneurs should be able to explain why their business exists in one sentence that states the problem and how the product or service will solve it, Dalvey says.
Of course, getting a venture capital firm’s attention is only the first step toward securing funding for a new business. The firm will then conduct its own due diligence about the company’s founders, their business model and the viability of the new product or service they propose to offer. With a five-year time window, many VCs will want to see how a business will use its venture capital.
Dalvey’s investors expect returns of at least 10 times what they invest, “so an entrepreneur will need to convince me that they know what they’re doing to expand their business from, for example, $1 million in sales today to $50 million in five years,” he says.
Why the brand matters
As organizations grow, their stories become more complicated, often diverging from the founder’s original vision. But here’s a simple test for communicators crafting brand narratives: In one sentence, can your organization’s CEO clearly communicate why the business still matters in today’s competitive marketplace? Can your employees communicate the need your organization seeks to fulfill, who your customers are, and what your organization’s number-one goal is?
Whether a business is making its first successful pitch to venture capitalists or its billionth sale to customers, communicating why the brand matters is the heart of every sale.
Stephen Dupont, APR, is vice president of public relations and branded content for Pocket Hercules (www.pockethercules.com), a creative brand powerhouse based in Minneapolis. He’s a frequent contributor to Strategies & Tactics. Visit his blog at stephendupont.co.