How long had the company’s scientists been toiling on the product? Nine years.

Timing is everything. We have heard it often enough. But as our example above implies, preparation contributes significantly to successful timing.

To acquire venture funding, emerging growth companies should have a product or service that is well-accepted in the market and generating a significant amount of revenue at a brisk rate of growth. Beyond that, it is important to examine your business and ensure it will fulfill the basic criteria of venture capital investors.

1. Industry relevanceThe investing mindset is constantly evolving. Investors often place their bets based on where they expect technology to land in five or 10 years. With little more than an idea or a concept to go on, they may look to current consumer or business trends and an in-depth understanding of sector and market dynamics to arrive at an educated guess.

Today, core investment areas include cybersecurity, robotic process automation, cognitive computing, data analytics, and the Internet of Things—among several

What well-funded, venture-backed companies know about raising money Focusing on investor priorities can help emerging companies stand out from the crowd

A small industrial products manufacturer recently landed a multimillion-dollar round of venture capital (VC) financing. Investors were excited about the breakthrough technology emerging from the company’s research lab—one that solved a long-standing problem in the industry it served. The infusion of new capital meant the company could at last produce its signature product at scale.

What well-funded, venture-backed companies know about raising money

Next-generation industrialization. Manufacturers are stepping up investments in plant equipment that communicate via the Internet to monitor supplies, inventory, maintenance needs, and production processes.

Autonomous cars. Automotive, technology, and transportation companies are developing fleets of cars that can navigate themselves by sensing information about their surroundings.

Genomics. Life sciences firms are creating more effective ways to identify, predict, treat, and manage diseases through the decoding of a patient’s personal biology.

Home automation. Technology and appliance manufacturers are equipping products with built-in systems that enable remote control and monitoring.

Insurance on demand. Insurance carriers are using data analytics and cognitive computing to streamline underwriting, provide micro- and usage-based coverages, and settle claims within seconds.

For an emerging growth company, this means relevance is key. Show where your product fits at the intersection of industry and the technologies that attract investment dollars. If that proves challenging—as it might for ideas that are really cutting edge—then provide context with what is happening in the technological world’s advancement.

2. Market sizeVenture capitalists target companies with high growth potential. How high? Experience has shown the typical threshold can be about $100 million in revenue within five years. Opportunities smaller than that are less likely to be funded.

Competition is a key consideration as well. Often, investors will examine how a product stacks up against other ones they might know about. That being said, the existence of competition is not necessarily a disqualifier, especially if a clear leader has yet to emerge. There can be room for multiple billion-dollar companies—the so-

called unicorns that VCs ultimately seek—in any given market.

To make your case with investors, consider the total available market. This refers to the amount of revenue your product could yield. It is fine to use assumptions for this figure, provided you explain them logically and provide the data to back them up. Be sure to explain where your product fits, including relevant channels. Additionally, extend your outlook five years because, again, investment thinking evolves.

3. Impact of the conceptOne reason investors are willing to fund companies—even in a competitive environment—is that results can turn on a single attribute. It might be, for example, the unique user interface, the underlying algorithms, or the way that data is captured. Whatever it is, if that attribute is innovative enough, it can make all the difference.

An offering need not break entirely new ground to be interesting to VCs. Consider where significant technology investments are going today—financial technology (fintech), medical technology (medtech), and insurance technology (insurtech) companies are good examples. Many of them are not creating new models or industries. They are upending the ones that were already there.

However, groundbreaking technologies create answers to which there is no clear question. Then, unexpectedly, the question comes up—possibly because of yet another technology. Other technologies target needs in areas where regulation has not caught up. Risky? Potentially yes. Profitable? Also possibly yes—often enough, at any rate.

others. These technologies are finding their way into nearly every industry. Examples include:

What well-funded, venture-backed companies know about raising money

Either way, the degree of disruption is what often gets investor attention. With disruption comes opportunity, and many exciting opportunities are exponential rather than linear. Count on investors to do the math and zero in on the largest potential gains.

4. Business credentialsVCs favor well-known founders with a proven track record in launching new businesses, but they can also assign weight to a founder’s personality, enthusiasm, and knowledge. Of course, not every founder has the gift of persuasion or a strong entrepreneurial pedigree. The good news is that other qualities count as well. They include:

• An elite education with an associated network

• Experience at a top technology company

• A founding team with at least five to seven years of successfully working together

• Flawless data, execution, and customer references

• A top-notch advisory board

Look at every option to bolster your image and your team. This assessment includes ensuring you surround yourself with professionals who have contacts and credibility in the target industry.

5. Customer Some products are nice to have, but not necessarily essential. Others are so critical to daily life, work, or well-being that consumers or businesses will make them a core part of the budget.

If your product is one of the former—or is close enough to a competing product that it fails to generate strong interest—you may be challenged to persuade VC investors. If your product is in the latter category, it could still prove challenging if the market is too narrow to pique VC interest. Many valuable ideas are big enough to generate a loyal customer base and a comfortable living for the founders. However, they may not be big enough to scale in a way that attracts venture capital; rather, they may be better candidates for other types of funding such as high-net-worth individuals, venture debt or traditional bank loans—or just bootstrapped by the founding team.

Candid feedback from potential customers, trading partners, and suppliers can help to size up a startup’s potential. In some cases, the product may be a solution to a problem too few have. Other times, the product may be so advanced that the market is not yet ready for it. Either way, these insights can prevent you from approaching VCs prematurely, preserving your goodwill for a more auspicious time.

Summing it upOf every 1,200 companies it evaluates, the average VC firm will fund only 10.1 That means while a great idea or product may put your emerging growth company in the running, breaking away from the crowd will take a significant amount of homework. This includes being ready with a response to the considerations that come up during investor due diligence. Add patience, focus, and relentless execution, and you just might find that time is on your side.

Endnote1 Sean Jacobsohn, “Here’s a look inside a typical VC’s pipeline (a must-read for entrepreneurs),” VentureBeat, April 19, 2014, https://venturebeat.com/2014/04/19/heres-a-look-inside-a-typical-vcs-pipeline-a-must-read-for-entrepreneurs/.

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AuthorHeather GatesManaging Director, Emerging Growth Company PracticeDeloitte & Touche LLPhgates@deloitte.com+1 408 704 4414