One of the world’s most active seed-stage investors, 500 Startups is a well-known name among venture capital firms. 

But competition for their funds is tough. At a Chamber roundtable on 23 April, Bonnie Cheung, Venture Partner at 500 Startups, gave members an insight into the top five strategies to make a VC sit up and take notice.

“The first thing – and the one that most people overlook, especially in Asia – is finding the right investors,” she said. “Don’t waste people’s time.” 

There are a wide variety of VCs, she explained. 500 Startups, for example, is a seed-stage investor that typically invests around US$100,000. Some investors focus on more mature companies, while others are sector-specific.

“So, for your industry, you should know who the people are that are investing heavily.” 

So, how to get in touch with a VC in the first place? Getting a direct introduction through contacts is best, at conferences is trickier, and cold-calling even more difficult again. But once you have the attention of a VC, you need to have all your numbers ready, she said.

The second key point is to look at the big picture. Cheung shared a harsh truth. “Most likely you’re not the first person who has had that idea and tried to showcase that idea to investors,” she said. “In my last 100 emails, there is not a single totally new idea.”

The funding will go to the person who shows they understand the market and can execute their idea.
The three other key strategies are to pitch like a pro, tell your story with purpose, and always follow up.
When you get the opportunity to pitch, the most important thing is “traction, traction, traction.”

This means knowing about revenue, user downloads, major signed partnerships, market size and target, pain point, team, technology, competition and market trends.

“If you don’t know all these things about your company, you’re not ready for pitching,” Cheung said.
Confidence about the details also demonstrates to the VC how passionate you are, which also gives an indication of how you will deal with the inevitable challenges of growing your company. 

Having a personal anecdote can help connect with the VC – but it has to be authentic, and must relate to the product, she added. 

Finally, Cheung said, you must follow up within 24 hours to demonstrate you are ready to move forward to the next stage. 

Keeping an eye on current trends is also important. Doing well now are blockchain, machine learning, augmented reality and health tech, while ideas in e-commerce, food delivery and the sharing economy are probably too late.

Cheung gave the example of Hooked, a reading app that 500 Startups invested in. Hooked tells fictional stories in text message form, aimed at young people.

“What impressed me a lot about Prerna (Gupta, the founder of Hooked) was she was able to go into a lot of detail,” Cheung said.

Gupta told Cheung that her company initially had the idea of an app with short extracts from novels. But when they tested it, even with just a five-minute snippet, no-one passed a 15% completion rate. They tried different formats and genres with the same results. Then someone suggested turning the stories into chats.

“When they saw the results, they thought they had done the test wrong as it had an almost 100% completion rate,” Cheung said.

But the success of the chat format was not the only reason that 500 Startups invested in Hooked, as Cheung explained. 

“We realised they had a full understanding of the market and had done their homework. They already had indication of how strong the demand should be.”

It was this evidence of how they had tested their audience and could execute their idea was what persuaded 500 Startups to say “yes” to Hooked.