“We should close funding by November.” That’s what we thought when we started down our funding journey in July last year.
At that time virtual reality was expected to be an $80 billion dollar industry by 2020. It’s now expected to be a $120 billion - $162 billion industry by 2020. That’s double market size! The numbers prove it. Virtual reality had a record year of $2.3 billion investment in 2016.
While we saw lots of investment activity in the space, we did notice some VR/AR startups feel an investment slowdown in the beginning of 2017. The investment market has cooled some since investors have been burned by virtual reality startup companies who haven’t delivered yet. They got in a little too soon, two to three years ago when the technology wasn’t quite ready. Unfortunately, now that the technology is ready, the purse strings have tightened up.
To compensate for this, VR/AR startups are finding that they are having to stay bootstrapped longer than they thought. Some are able to go to friends and family for initial investment. This isn’t necessarily a bad thing. It is a good reminder that closing funding rounds take time.
Our advice? Closing funding is a marathon, not a sprint.
1. Start building relationships with venture capitalists (VCs) and investors now, before getting to the point of asking for money. VCs are known to invest in the people and and team first, before the product. If they like you as a person they are more likely to invest in you when it comes time to ask for funding.
2. Find a financial advisor or mentor to help manage your expectations and guide you through the funding process. There are many steps to closing funding, it’s not as cut and dry as writing a check. After agreeing to terms, there are transaction documents to be be reviewed, and lawyers on both side who want to make sure everything is in order.
3. Don’t jump on the first offer you get. Remember, being invested is a two way street. Make sure you like the investor and can work with them as much as they want to put money into you. Seek out the “smart” money.
4. Don’t quit your day job. Even if you start having serious talks with an investor it can take 7 - 14 months to close a funding round. It can take even longer if you haven’t started talking with investors yet. See point 1 above.
5. Be patient, keep pitching, and network at events. Having your company’s face out in front of people will keep you first of mind when they’re thinking of who to invest in. Word spreads quickly. Even if you don’t talk to an interested VC, they might mention your company to someone who is.