How to handle VC inbound when you are at day one
Frst is a seed-stage VC firm focused on supporting a new generation of French entrepreneurs with global ambitions. We invest from day one to the day before Series A, either directly or through our web3-focused lecryptofellowship.com program.
As a founder with a Linkedin profile, you most likely receive many sollicitations from VCs who “heard great things” and “would love to know more about what you are building”.
It can be confusing, particularly at the beginning of your journey when it’s very unlikely that they actually heard something about you, and you actually have very little clue about what you are building.
You should know that 99% of the VCs who contact you at this stage are not actually prepared to invest in such a young project and just want to fill their CRM. It makes them dangerous, because it’s way more reassuring and fun to feel wanted by VCs and dream about a big round than to test a 50th iteration of your idea with a potential customer. For them it’s just 30mn and a line in the CRM but for you it can be a day of preparation, a night of troubled sleep, and a deception when nothing happens after the call.
Most VCs don’t invest at pre-seed stage in first time entrepreneurs
Investing at pre-seed stage when there is no product and barely a team is a very specific kind of investing.
Most first-time entrepreneurs are not good at execution, and will unfortunately never reach the moment when a good idea works better than a bad one. On the opposite, repeat entrepreneurs demonstrated that they could execute on their ideas sufficiently well to make them fly.
This is why most VCs will only invest at day one in 2 cases:
- Founders are “Repeat Entrepreneurs”: people who already built a company worth at least a few millions and ideally a lot more
- Founders are “Top Operators”: employees from exciting companies who saw how to build a rocketship from the inside
It’s otherwise considered way too risky (data actually says c. 4x more), and only a few “pre-seed” VCs (Frst is one of them) engage in this type of things, along with Business Angels (individuals who invest their own money with tickets mostly between €10k and €30k).
If you are neither a Repeat Entrepreneur neither a Top Operator, 99% of VCs won’t invest in you before you have a product (“post-product”) and happy clients (“post Product Market Fit”). So why are they reaching out?
“Building the relationship”
If asked, those who are honest will admit they don’t plan to invest in you on the short term, but are happy to create a relationship with you so you already know each other the day it makes sense to raise money.
From their standpoint it’s an easy decision: in exchange for 30mn of their time they make sure you are not a RE/TO or post product/PMF already, and create a communication channel that may be useful 6–8 months later.
The tradeoff is way less obvious for you. Here at all the Pros and Cons I can think about regarding talking to VCs before you are investment-grade:
Pros — Not so much:
- Creating a communication channel. But the day you are ”hot” people will kill to meet with you, so creating the communication channel before has limited interest
- They may get an idea of someone interesting to intro you to (candidate, early adopter, industry-specific Business Angel)
- They may have a useful insight about your industry to share with you
- VCs have a specific linguo and body language that they feel comfortable to see with entrepreneurs, and this is a chance to learn a bit of it. It’s however probably better to get this knowledge online with excellent sources such as YC Library or First Round Review
Cons — The downsides are very real:
- Time is way more precious for an entrepreneur than for a VC: you have a few months to make things happen, and don’t have several sharp analysts on the payroll to do the call for you!
- The psychological cost is real. Even if you know the drill, it’s hard to interpret a no as something good
- Even trickier: despite what VCs say and even think, it’s very difficult to change one’s mind once it had been made. If you sound a bit “green” or say something silly, this will become part of the way the VC sees you. And since it’s an industry in which everyone talks to everyone, it will become how many VC sees you, even if you didn’t meet with them
“We are heads down building the product “
Does it mean you should not talk to VCs who don’t focus on pre-seed until you have a product and happy customers, no matter how tempting it is? Generally speaking, yes, and the only thing you should do when a VC reaches out pre-product is:
- Answer with a nice and friendly message, in this fashion: “Thanks a lot for the interest, I heard great things about your fund from XYZ and would love to connect. For the next weeks we are heads down building the product, but I will definitely get back to you when it makes sense!” “Heads down” is a code in startup world meaning you know the drill, they won’t insist
- Note the name of the VC in a Google Sheet so you don’t forget to get back to her when its time
Your idea can be green, but not you
However entrepreneurs are curious and like to break rules, so it’s likely that you will end up talking with VCs before you should. Here are a few things you should know if you prematurely end up on the ring:
- Being a bit vague on your idea is way better than saying something silly. At such an early stage, no one really cares about the details of your ideas, as long as you have an inspiring narrative to share and are targeting a large market (=which allows a successful company to be worth at least 10 billions). However, if you get into the details and say something that is not logical, people will wonder if you are the kind of person who say and do non logical things. It’s perfectly fine to answer “we haven’t figured this part out yet”
- Once she identifies you are not “investment-grade” at the moment, the investor will ask herself how probable it is that you become so in the near future. You consequently want to convey the sensation that you are very driven, eager to learn, and have good people around you to learn from. If you have good relationships with well known founders, operators or BAs/VCs do not hesitate to flash them, social proofs always work
- Now that you are here, make the most of it. Be a behavioral sponge, attentive to everything that looks or sounds odd, it’s likely to be something common in the industry
- Feel free to ask “do you have ideas of people I should talk to?” VCs meet with a lot of people and could point you out an early employee, a entrepreneur working in a similar field, an industry-specialist Business Angel…
Ok fine, I will wait. How will I know the day I’m “ready”
Tricky one :) If you have pre-seed funds or Business Angels in your cap table they can give you a sense of it. If you don’t, a few good and happy clients never lie.
Frst is one of the rare funds operating in the French ecosystem actively investing in pre-product first time entrepreneurs (directly or though lecryptofellowship.com). Do not hesitate to reach out! firstname.lastname@example.org