I’ve spoken to many entrepreneurs who have landed venture capital for their companies, but few have done as many successful VC rounds as Michael Paolucci. A serial entrepreneur, Paolucci most recently scored $2.3 million for his temporary tech-help company, Solvate. He was also owner of 24/7 Media, which sold in 2007 for $650 million.
On the Solvate deal, Paolucci used some canny strategy, revisiting VC firms he’d struck out with in the past with other startups. RRE Partners, which had passed on the 24/7 deal, ended up participating in Solvate’s funding.
It’s not easy lining up venture capital right now. The National Venture Capital Association tracks VC funding data with MoneyTree and PricewaterhouseCoopers. They report that VC funding has shrunk by one-third in the downturn. In the third quarter of 2008, VCs invested $7.2 billion in 994 deals. Compare that with the third quarter of 2009, which saw $4.8 million go into 637 deals.
How can you get venture capitalists excited about your company in this competitive climate? The following include some of Paolucci’s tips for landing venture capital in a tough economy.
- Know your ABCs. That stands for “always be closing.” Paolucci was on a flight home from New York to Los Angeles and found himself sitting next to a money manager from Travelers. He spent five hours pitching his company, Interactive Imaginations, a predecessor to 24/7. Travelers made an initial $500,000 investment and invested millions more later on.
- Know your sector. Target VCs that show a passion for your specific market. It’s harder to convince an investor who’s not active in your sector that you have a great idea. Find the person at the firm who’s crazy about your sector and you’ve won half the battle. Paolucci reports he got Random House to invest $1 million in a company that offered a crossword-puzzle game because it attracted the interest of the company’s crossword-puzzle editor. That editor evangelized for the company.
- Put many irons in the fire. “VCs are pack animals,” says Paolucci. “Think of this process like making breakfast: You want your bacon, eggs, and toast all to be ready at the same time, nice and hot and not overcooked. Get three VCs to a boil at the same time. Use their names with each other and show them they’re not alone. They need a little fear of losing a great deal to convince their partners it’s the right deal at the right time.”