Three tips on raising expansion capital from VCs

My colleague Kobie Fuller recently had an interview on Vator.tv where he noted 3 tips for companies raising venture funding:

1. Be clear on the mission and vision. And, make sure the team aligns with that mission.
2. Create a business plan, and determine how much capital is really needed.
3. Find an investor who can really add value.

I would like to add my 2 cents to this by making this list more specific to expansion stage software companies. As anyone would know from perusing our website, OpenView focuses on a very specific set of companies that have fast growing quarterly revenues between 0.5 to 5 million dollars, and an established product offering.

At these companies, there is usually a team that has been going after a mission and vision for at least a few years to get the company where it is. They definitely had a business plan when they started, and for the most part, it would have had been quite successfully executed. While for the most part, OpenView is the first institutional investor in a company, we have invested in companies with existing VCs who continue to add tremendous value after we have come onboard.

So how would we reinterpret these tips for an expansion stage company, given that they have probably done it right in the start-up phase?

1. Have an ambitious mission and a very long term vision of a big (think IPOs) software company that really matter in its market.
2. Have a well thought out expansion plan that is both realistic and ambitious, a plan that the whole management team can rally behind. It also set a very clear expectation of the amount of capital to be raised which should help prevent unexpected dilution due to later rounds.
3. Know the type of investor/partner they are looking for. The investor should not just be providing capital, but they need to be able to give the leverage that will catapult the company onto its ambitious arc towards becoming a large, important company.

Next week I will discuss some tips for raising funding from incubators or seed funding programs.