How can a startup increase its chances to secure funding? What makes a startup attractive to more investors? Matan Hazanov, Managing Director of Verstra Ventures is ready to provide key information for any startup!
The StartupClub: Could you tell us more about yourself?
Matan Hazanov: I am the Managing Director of Verstra Ventures, a Toronto-based venture capital firm that invests in early-stage vertically focused B2B software companies. I am entrepreneur at heart, started my first business at 18 and a couple more later. My first “real” job was in venture capital, and now have about 8 years of formal venture investing experience. I have made dozens of investments all over the world in just about every industry. I see about 1,000 pitches a year and make about 2-4 investments. The experience has given me some insight into what works and what doesn’t.
The Startup Club: What do you usually want to see in a startup before you decide to look into it further?
Matan Hazanov: Aside from an immediate pass on those reaching out that don’t fit our mandate (consumer, horizontal software, hardware only, etc.), most companies need to have a short, well designed pitch deck that illustrates the following:
- Significant problem being solved
- Solution that obviously solves the problem in a measurable way, with evidence
- Traction from customers, even if its just pilots or POCs
- A reason why that group of founders is well suited to win the space
- Why now…
I should be able to see this in reading a short email or pitch deck. If I don’t see the above expressed very clearly in 5-10 min of review, I generally pass. For example, just yesterday I reviewed about 20 decks and only asked for a meeting with 1. Half were not a good fit, meaning they didn’t review our website before reaching out, and the rest just didn’t demonstrate the qualities we are looking for.
The Startup Club: Based on your experience what are some of the frequent mistakes that startups make in their first steps?
Matan Hazanov: Validation. Great entrepreneurs love building cool products and technology, but many don’t ask if customers will pay for it (or how much). Successful software companies are usually the result of co-developing products with customers, but many inexperienced founders will assume needs, wants, and challenges without validating them. A successful software sale requires more than just a problem being solved because there can be barriers in implementation, legacy products that are difficult to replace, and/or behavioral and organization changes that would be required.
The Startup Club: How did you get into this investment sector?
Matan Hazanov: There are 3 reasons why I got into venture capital and love what I do:
1. I am an entrepreneur and investing in startups gives me the opportunity to build businesses vicariously through the most talented and exceptional people I can find.
2. I believe that technological advancement is a prerequisite for an advancing society. Most major challenges humanity has faced was solved through innovation and I want to be a small part of that process.
3. The role itself is dynamic and challenging. Every day is different, presenting unique challenges, that require the combination of various skills from people management to analytic prowess. I don’t just have to face challenges of running an investment firm but all those faced by our portfolio companies and not a week goes by without a difficult question surfacing.
The Startup Club: How can startups in the Pre-Seed stage increase their chances of attracting investors’ interest?
Matan Hazanov: Every startup looking to raise capital should do the following to improve their odds of getting funded:
- Prepare a well-designed pitch deck
- Prepare an organized data room with high quality information and data
- Attend an accelerator or incubator that has a strong network of investors
- Build relationships long before you need to raise capital (even later stage investors), that means a lot of networking and meetings where the goal is advice and not asking for money
- Build a well-rounded team and give up some equity, if needed. For example, if you’re a tech business you should have a strong technical co-founder
- If you’re selling software, you should have an MVP and traction with customers, even if its POCs, trials, alpha users, etc. If you’re at the idea or initial development stage, it will be very difficult to attract investors if you’re a 1st time founder.
The Startup Club: Do you have any piece of advice for startups that are trying to navigate the current environment and present themselves?
Matan Hazanov: My advice to every founder is to ask themselves a simple question: are you willing to put your and your family’s life savings into this business? Once you start thinking in those terms, you begin asking the necessary questions about the company. This is an emotionally difficult process if you’ve already invested a lot of time/money into your business because it will force you to confront any potential weaknesses. But I believe it’s something you must-do and, if you can’t honestly answer “yes” to this question, do not ask any investor for capital.