SAN FRANCISCO — If there’s one piece of advice Doug Perlson has for entrepreneurs when it comes to pitching a venture capital fund, it’s this: Give them a projected valuation of your company five years in the future.
Perlson, a serial entrepreneur who is now CEO of RealDirect, dubbed the time period an “eternity” for a startup, but he said that the issue “came up every time I was raising money.”
Oh, and another thing, he added: That valuation better be at least $50 million.
Perlson’s tip merely grazes the surface of best practices for courting investors, a pursuit that largely boils down to identifying and targeting the right type of financier.
And sometimes venture capitalists aren’t your best bet, according to speakers participating in the Real Estate Connect panel “Raising Money to Build Your Vision.”
In fact, Constance Freedman, managing director of Second Century Ventures, the investment arm of the National Association of Realtors (NAR), said her company usually won’t even consider backing a business unless it judges that the company could achieve a market value of $100 million in five years.
“Most companies are not built for venture funding,” added Sean Jacobsohn, a venture partner at Emergence Capital Partners.
But that’s OK, said Sina Shekou, co-founder of Propertyware.
“The finish line for an entrepreneur is not raising venture round, it’s getting the exit,” he said. “A majority of exits happen in the range of somewhere between the $2 million to $50 million number.”
For that reason, many startups should focus on bagging angel, seed and other types of funding instead. And don’t forget to solicit commitments from what Shekou portrayed as the holy grail of investors: customers, Shekou said.
After Shekou landed some commitments from customers of one startup he worked on, he said the company found great marketing success in broadcasting that backing, getting its customer-investors to make appearances at trade shows.
“We milked that cow for all it was worth,” he said.
But regardless of what sort of investor you’re trying to woo, make sure your pitch deck does not misrepresent your market size, panelists said.
As Jacobsohn pointed out, just because your startup sells a tool for agents doesn’t mean all agents are potential customers. Be sure to whittle down your number of potential customers to a realistic number, and then calculate market size in dollars accordingly.
But regardless of what class of investor a company pursues, it should always attempt to hunt down backers who are experts in your field and can help cultivate your business — “people who add value beyond capital,” Freedman said.
“What you really want to do is find investors who know your business, who can give you advice on your business, who can actually add value and grow your business,” she added.