Why Don’t VCs Ever Respond?
Best Practices for Engaging Potential Investors
On a personal note, let me just thank you for the simple courtesy of responding to my emails. It’s not something as an early stage startup I get to experience often from VCs.
I received the message above when I recently passed on an investment opportunity with a serial entrepreneur. VCs are notoriously guilty of tardy or non-existent replies, and I am certainly not without fault.
Like many investors, I aim to get back to as many entrepreneurs as possible with a helpful response, and to only take their time when a meeting could be worthwhile for both sides. However, from a practical perspective, it’s impossible for established investors to follow up with and meet every entrepreneur that pitches them. A significant portion of investors’ time is spent supporting their portfolio and proactively reaching out to startups, which may not be responding to them either.
It is more than fair to expect substantive feedback from an investor who you took the time to walk through your pitch. Here are some tips to help you get to that first step.
Focus — Don’t Waste Your Time
Do not waste your time reaching out to VCs that are not a fit by stage, sector or geography. There is no need to tell the entire investment world you are fundraising or to distribute your investor materials broadly. Do your diligence on the focus of a fund and the individual you aim to meet with to see if your company fits within their scope.
If they fit, make sure that none of their portfolio companies are a likely competitor. VCs have an obligation to their existing portfolio companies and are not likely to make a competitive bet. An investor cannot be certain of overlap until they hear your full pitch, but you should gauge potential overlap before revealing your secrets.
Get a Qualified Intro
VCs leverage filters to help prioritize investment opportunities. The primary filter is their network, including their existing portfolio, other investors, former colleagues and other contacts that could be within your potential customer base.
An introduction from an existing portfolio company is a strong signal. That contact can also give you feedback on the quality of the investor and, possibly, guidance on how to deliver your pitch.
Another VC who is already an investor or committed to investing in your company is an excellent option. Do not ask a peer investor who has passed to introduce you to other investors! The investor will ask why they should take a look if their peer is not interested.
LinkedIn can also help you identify mutual connections that may have worked with investors in the past, or people within your customer base that may know the investor. A referral from a happy customer is a great introduction to a funding conversation.
If finding a qualified intro is a challenge, you can try to connect with investors at events. Large format conferences may work, but trying to catch someone at the end of his or her panel among a large crowd is not an easy task.
A better approach is to look for investors that are attending smaller meetups and other events that are curated for your area of focus. They are more likely to be seeking investment opportunities in your space.
Volunteering to help out at these events or starting one yourself can also build a network bridge to investors.
Particularly for concept or beta stage startups, premium accelerator programs provide introductory mentor relationships that give entrepreneurs the time to develop investor connections and prove their potential before funding is the primary topic of discussion. Even investors that you may first connect with at demo day will give you credit for having been a graduate of the program.
Alternative Capital Platforms
As an alternative to the traditional institutional route, online investing platforms ranging from AngelList and Gust to Kickstarter and Indiegogo have made it much easier to access the broader angel investment community as well as revenue-based financing.
If you have the ability to avoid equity altogether and subsidize your growth through customer revenue, then don’t bother with institutional capital. While certain business models are appropriate for venture capital-fueled scaling, many more have been successful without ever selling equity to outsiders.
As an absolute last resort, you can try to reach out to investors cold, through their websites, email, LinkedIn, Twitter, Medium, etc. If you have built a substantial online profile of your own, this will help lend credibility to your message.
If you must go this route, provide a succinct pitch, with trending data where possible to grab an investor’s attention. Share the same metrics that matter to you as an operator, not how many users have ever registered or visited your site over the last year, but how many active visitors or customers you have, any revenue you are generating, and how these metrics are growing month over month. How your business is trending is often just as important, if not more, than how big your business is.
You can also try to find some common ties for a meeting, such as an alumni connection or shared birthplace. These are long shots but can work.
The pitch that is least likely to receive a response is a cold email or phone call stating, “I’m disrupting the xyz space with an amazing business idea that I’d love to talk to you about. Please call me or let me know when we can meet.”
Once you get the meeting, be sure to end it with a clear understanding of next steps. Ask how the investment process works at the firm. What other information can you provide? When will the investor discuss your company with his or her colleagues? When should you expect to hear back or should you check back in?
You should aim for a quick yes or no. There is no reason to spin your wheels taking more meetings or creating additional information for investors that are not likely to move forward.
If the investor passes, be sure to ask for a few key reasons why if they are not already provided. If the investor may be able to participate at a later stage, ask if you can stay in touch to help demonstrate how you are addressing those issues over time. You can provide quarterly updates to stay on their radar for future funding.
The best thing you can do is get to know investors well in advance of when you need their capital, not just for the benefit of the investor but for yours as well.
Finding your investor is akin to courting a spouse, except many investment agreements have a unilateral divorce clause that is not in the entrepreneur’s favor. You want a long term relationship, not a shotgun wedding.