There is no formula to guide the conversation between two people — so much depends on context. That said, when it comes to entrepreneurs and investors, there are some overall principles that hold true. This post will highlight 7 practical guidelines to help in your first conversation with an investor.
1) Getting Introduced — The conventional wisdom is really true, it’s almost always better to get introduced than to reach out cold. For one, it’s an external validation that someone else is willing to take the time and effort to connect you to an investor and to put their own credibility behind you. Arguably the one exception is if the broker introducing you is actually a liability — he / she might publicize to others when you want to remain under the radar or has a mixed reputation that compromises your own.
2) Investor Introductions — Investors introduce companies to each other all the time. But they are often doing this when it’s a company in their own portfolio or if they are building an investment syndicate. When VCs introduces a company he / she is not invested in, the question invariably comes up is why not. Sometimes that has a very logical answer, either the firm doesn’t focus in that particular area or is truly not focused at that stage. As an entrepreneur you should be aware of what are the potential interpretations and instead get yourself by a more neutral party if you feel it could actually jeopardize your case. A proven entrepreneur who was funded by the firm you are trying to connect with is one of the strongest introductions because it leverages a relationship of trust and success.
3) Cold Intros — If you reached out cold to the investors you are probably starting the dialogue with an implicit, or perhaps even explicit, perception that you need to prove your worth. If it’s a cold intro because the investor reached out to you then you should understand their motivations, whether it’s truly because they are interested in investing, or if they want to build a relationship for the future, or in some cases because they are looking at a competitor and want to understand the landscape. In the latter case, you can still take the meeting but beware of what you disclose.
4) Targeting your conversation — VCs get tons of business plans / decks / pitches, often to the point of being unmanageable. If you send a deck beforehand and are meeting with the VC thereafter, it can only help you to gently ask how much the VC knows about your company so you can calibrate the conversation. If you have planned to meet over coffee / lunch you should still have your deck / demo handy in case the conversation veers that way, or steer towards a followup.
5) Associates versus Partners — Many will tell you to only meet with partners in a VC firm because they are the ones that really matter. This is risky for many reasons — a partner is rarely the single decision maker and must convince his / her partnership, many VC firms have started to call everyone a “partner” to obfuscate the market, and associates legitimately can bring a lot of value. Associates are often more available and have an incentive to champion your deal since it’s good for their career too, so as an entrepreneur what you really want is to work with a strong associate-partner pair.
6) Transactional versus Relationship — Arguably the most important dynamic in a first conversation. I always advise entrepreneurs to approach a VC to get to know each other first, get their views on your business, learn what it would take for them to invest, and what value they could provide. If you do this even a few days but ideally a few weeks before starting to formally pitch, your actual fundraising conversations will start from an existing foundation and probably go much smoother. It’s a small world, you are likely to interact with the same people on the other side or same side of the table multiple times in your career.
7) Breaking Doubt — If you are getting enough pushback from a VC then you always have the choice of leaving the conversation open for a future round and focus on the VCs that are more promising. But if you really want to turn someone around, then external validation is often the most powerful way to break doubt. Point out your progress with other VCs, perhaps even naming them if you feel that disclosing that information will help your case. If you have an actual term sheet then you will find yourself in an accelerated cadence since it creates a time pressure. There is a healthy balance between too few or too many VC conversations, 4–5 serious contenders is probably the right number to be pursuing when the timing accelerates.
Found any of these practices useful? Like away. Any other practices you have found particularly useful? Comment away. Thanks to Saurabh Singh for suggesting this topic.
