Attracting a venture capitalist to invest in your subscription service is a fantastic way to inject considerable funding that will take your already budding business to the next level.
But with so many other subscription services out there, in a wide array of niches, how do you stand out from the crowd and get noticed by not just any investor but the right investor? Our partner, Blend Commerce, gives their advice.
Is it hard to get venture capital?
Gaining venture capital (VC) is not an easy feat, and nor should it be. It’s important to remember that while an investor may wholeheartedly believe in your brand and want to work with you to make it a success, they are most interested in the bottom line and gaining a return on their investment. If a VC invests in a business that folds, they stand to lose a substantial amount of money. So, understandably, they need to be as sure as they can be that the companies they invest in will succeed.
What are the benefits of venture capital?
The main benefit, of course, is the injection of funds to grow your business, gain new clients and make more profit. But if you find the right VC, you will also gain a strong and experienced ally who’s willing to mentor you and make your company as strong and successful as possible. This is why it’s essential to gain venture capital and find the right capitalist for your subscription business.
How to choose the right VC firm or investor:
While the route to securing funding through VC is by no means easy, there are some things you can do to increase your chances, including:
1) Evidence business growth
VC’s likely won’t take a chance on a business that can’t prove that they have a viable service to offer. So before you approach a venture capitalist or firm for funding, you need to get your brand to a strong enough position that you can show considerable growth with potential for even more (if you had the funds).
You can do this by:
- Showing an upward trend in subscriptions
- Partnered with an incredibly low (preferably lowering) cancellation rate
- Evidencing an upward trend of subscription upgrades (if this is an option within your business model)
- Positive reviews from third parties (as these are more reputable)
A positive by-product of this is that you’re showcasing to investors that you’re astute and financially adept, someone they can depend on to stay on top of things and make changes quickly when needed to protect your funding.
2) Consider partnering with a co-founder
It’s possible that you can gain venture capital as a solo business owner, but there’s a higher chance of success if you partner up with a co-founder. Additional benefits include having a sounding board and someone to take some of the load as your business grows.
Building a successful brand is an incredibly difficult thing to accomplish. If you can find someone who cares about your subscription service as much as you, you may find the whole experience much more enjoyable, profitability more likely and chances of attracting a VC higher.
3) Look for the right venture capital firm
You may think that money is money, and you shouldn’t turn down an offer; however, there is such a thing as the right investor. If you’re lucky enough to have more than one venture capitalist show an interest in your subscription service, we recommend analysing the value they can add to your journey in addition to financial funding.
If you can find an investor that’s willing to take the journey with you, mentor and advise you as you navigate new waters, this will be far more beneficial than someone willing to provide the funds but nothing else.
4) Approach potential investors for advice first and foremost
Rather than jump straight in with a pitch, it’s wise to approach VC’s that you admire and ask them for advice.
Building relationships, and therefore opportunities, naturally will stand you in good stead for when the time comes to start pitching. It will also increase the chances of a VC accepting your pitch if they have prior knowledge of your subscription service and have experienced its growth first-hand.
5) Be able to answer these questions
It’s essential to go into pitches armed with as much information as possible; you really do need to know your business, including a myriad of statistics. It takes very little to give a venture capitalist cold feet, so ensure you go into a pitch knowing the answers to these:
- What goals your target investor may have regarding your company
- The pricing structure of your subscription service
- Your company profit margins
- How you will gain new customers
- The payback period for acquiring new customers
- The potential size of your target market
- The all-in costs per month
- The average life cycle of a subscriber
- How much customers will pay per month for your product
- The price of sourcing things for your subscription (if required)
- Whether sourcing will be ongoing
- Shipping costs (if needed)
This is not an exhaustive list, but it showcases the depth you must go to and the type of questions you may face.
6) Calculate an ROI to pitch
We’ve mentioned above how important the bottom line is to a venture capitalist or firm, so you must be capable of providing a calculation of potential ROI. This will help investors reach their decision and will also showcase that you understand that this will be a partnership and not a one-sided deal.
Remember to choose your venture capitalist carefully
Generating interest and venture capital funding for your subscription business is not an easy task. It requires a lot of time, dedication and work. While your brand may need additional funding to take the next step, it’s essential that you find and pitch to the right VC, someone or some company that will invest more than money into helping you grow and achieve your business goals.