How to Get Venture Capitalists to Fund Your Product Idea

Posted by Jim Sener on September 24, 2018 at 7:41 AM

Gaining funding from a venture capitalist is something many product developers and start-ups attempt all the time, and often fail.  What are venture capitalists looking for? How can you impress them enough to secure funding? The answers are fairly straightforward - but that doesn’t mean it’s going to be easy.  Investors are looking for established ideas that necessitate a great deal of preliminary work. If you’re considering approaching a venture capitalist with your idea, here’s what you need to do first.  

Conduct effective research

Gathering voice of the customer (VOC) research is an important first step. Robust research proves to an investor that you know your customers and what they actually want.  Gathering VOC research can be accomplished a number of ways - through customer surveys, social listening, focus groups, or net promoter score (NPS) which is calculated through simple, often single-line questions such as asking customers to rate a product or service on a scale of 1 to 10.  

An exhaustive research process will be time-consuming, but detailed customer data is invaluable toward building an accurate picture (for both your company and its potential investors) of your audience and what they actually want.  Furthermore, this data can help accelerate new product development as you uncover elements of your idea that could be improved, or test out ideas for complementary products that you could develop alongside the original.   

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Show proof of concept

Proof of concept is considered best practice for any business plan, but absolutely essential for business plans that are intended to go before investors. Typically proof of concept is determined by how many existing users you have, as well as how quickly the business is growing.  For example, an app developer might do a soft-launch of a new app, build a base of users, and then track customer appreciation ratings and increase in app downloads month by month before pitching a funding plan to an investor. product innovation checklist

To demonstrate substantial demand for your product or service, you can try a number of tactics including surveys, beta testing the product with small focus groups, or by executing a pre-launch operation like a pop-up booth at a trade show where you can chat with people about your product, offer samples and gather feedback on the spot.  Utilizing paid ads on social advertising channels like Google or Facebook is another way to seed users for testing and feedback.

To raise professional venture capital, your innovation needs the backing of an existing user base and evidential interest from those users in the continued development of the product.  A round of capital might get a product off the ground, but the customer is the one who determines sustainable growth. Venture capitalists know this and are looking for an idea that has already tangibly caught an audience’s attention.

Create supporting media

Media content - including your website, video or photography, and all packaging and branding materials - are important components in building credibility and a sense of market presence.  Visual messaging communicates value to customers and connects them to your product or service, creating clear, impactful impressions that can remain top-of-mind and help motivate toward purchase.  Ultimately, investing in quality media content and intuitive, targeted branding communicates the kind of customer-centric, forward-looking approach that venture capitalists want to see.

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Branding and packaging is, in essence, a visual description of your product and why a customer should want to buy it. This is why the most powerful companies rarely, if ever, tinker with their logos, colors, and brand identity.  Good branding has incredible staying power, which is why a well-thought out brand will speak volumes to investors.

Develop a professional prototype

Venture capitalists are primarily concerned with limiting risk and therefore most of them will not even consider investing without a working prototype. Whether you are getting a patent for your product, applying for funding, or both, developing a prototype with real functionality is one of the most tangible ways to capture attention and build credibility.  

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Prototyping an idea can be costly and time-consuming. Items like new medical devices or large-scale pieces of machinery are expensive to prototype and require a lot of preliminary research with vendors regarding manufacturing costs. Most of the time, investors are looking for the kind of demonstrable functionality that only a working prototype can offer.  This is why many product developers consider prototyping a pre-production model first to eliminate time and cost further along the process.

While capital might seem like the first logical step to success, gaining funding for an idea is, in actuality, much further along the development process than many innovators might initially think.  A good product is the result of equal parts creativity, confidence, and perseverance. If you can do the heavy lifting investors are looking for, you stand a good chance of landing the capital you need.  

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