Chapter #6 — VC Meeting Dynamics 101
Raising your Seed Round — A Playbook for Israeli Entrepreneurs
After discussing how much to raise in Chapter #1, the various sources of funding in Chapter #2, VC organizational structure in Chapter #3, securing face-to-face Partner meetings in Chapter #4, and guidance on how to prepare for these meetings in Chapter #5, Chapter #6 covers key conversational dynamics to consider, possible outcomes of the meeting, and how to handle each scenario.
As discussed in the previous chapter, early-stage investors have different models for assessing risk, and in order for these models to produce decisions, they need to collect data. This data collection effort drives the entire investment process, as the VC tries to validate their intuitions and assumptions about you and your business.
You will find yourself with 1–2 Partners and 0–2 investment professionals depending on the fund. In the first few minutes, take the opportunity to make some small talk, show your personality, get to know something interesting about the other people in the room, and create a good vibe. The VC will extrapolate from your interactions how you treat employees, customers, and partners. Also, if the VC doesn’t connect with you as a person, he/she will not commit to 5–10 years of working with you. I’ve seen many entrepreneurs jump right into pitching without taking the time to make conversation — which may be a symptom of the Israeli “bluntness” — but connecting on a personal level is culturally agnostic, and we’re all human (for now).
After developing the initial connection, try to leverage your prior research to learn a bit more about the specific interests of the fund. For example, “So I saw your last two investments were both in digital health. Is this a new focus area for you?”, or “I saw your last two investments were syndicated with other investors — do you typically syndicate or prefer to take the whole round?”. Anyone can ask, “So can you tell me more about your fund?”. Be different and ask the second-level questions that show you have already done some homework.
Before you begin telling your story, ask if the VC prefers to hear the story with slides or without. In most cases, the VC will prefer a presentation because it helps structure the conversation, focus visual attention, and provide facts, figures, and statistics to help the VC understand your offering. However, if the VC prefers that you don’t use slides this indicates a willingness to connect in a more personal way, since the VC will pay attention to you, rather than splitting attention between you and a television screen. If the VC gives you the option to choose, use whichever method gives you the most confidence.
VCs will take notes and ask questions. Direct your responses to whoever leads the conversation. The more you prepare, the more you will likely you will have the spare attention to actually comprehend the question — as your mind will be less focused on remembering, more in the present. Many times, entrepreneurs focus too much on speaking and getting their point across, failing to realize that any successful sales effort is more about carefully listening and responding than promotion. In general, if a VC asks a specific question, answer it, rather than postponing it until later in the presentation. The VC wants to get an answer to the question before processing any new information. Delaying that answer makes it harder for them to process new information. Don’t get hung up on delivering your entire deck — remember, you’re here to get them to invest, not to deliver each and every slide of your deck in the exact order you’ve prepared them.
As you progress through your story and answer questions, strive to remain open to feedback. VCs can offer valid criticisms of your business that when addressed can actually make your company stronger. In cases where the VC fails to understand your point, exercise patience and try a different approach. In cases where the VC disagrees with you after several iterations, agree to disagree and move forward.
Towards the end of your presentation / conversation is the “ask”, the moment where you specify how much capital you’ll need to get to the A round. At this point the conversation will go in one of five directions.
1. The VC gives you an offer
This is a rare scenario where either the VC has an extremely high risk tolerance, feels comfortable rescinding the offer, and/or knows about other high quality investors who have given you an offer and doesn’t have time to investigate further, if he/she wants to compete. If you get an offer in the first meeting, congrats! But be wary of investors who offer to lead your round but haven’t taken the time to get to know you.
2. The VC wants to learn more
Depending on the VC, this can signal the beginning or continuation of the due diligence process, or it can be the first step in a sequence of pre-diligence meetings. Take this opportunity to communicate your excitement about moving forward, while asking the VC to define their investment process. With limited time and a business to build, you need as much visibility into the remaining steps of the process as possible because loosely defined processes are likely to result in frustration, rather than efficiency. Before you leave, make sure you understand the outline of the VC’s investment process and your location within it.
3. The VC wants to discuss internally before deciding
Ask if this is a policy, or if its an exception. In other words, does the VC always discuss opportunities internally before moving forward? Or can you also get to the next stage of the process in the meeting itself? Always ask for a timeline, sync with your CRM, and follow-up as needed.
4. The VC decides that you are too early and tells you to keep in touch
In this case, the VC doesn’t feel comfortable with the risk/reward ratio and wants to see you reduce some of the risk factors before reevaluating. Try to specify the exact risks the VC feels uncomfortable with and when would be a good time to re-engage. Record this information in your CRM and act on it appropriately.
5. The VC says no
In this case, the VC doesn’t feel comfortable with your business, your plan, and/or your chemistry. Take the opportunity to see if you can extract additional feedback that can help you improve for the next VC. Keep in mind that VCs only do 1–2% of the deals they review, so sometimes it will unfortunately come down to your business not being attractive enough relative to some of the other opportunities they are reviewing. Sometimes it will come down to the VC having slept poorly and nothing to do with you. Other times it will simply be a lack of personal chemistry. Accepting rejection is not easy, but it is essential to progress.
In any case, take the time to end things on a positive note and in a graceful manner. To be clear, closing down your laptop, getting up and walking out of the room in a defiant manner is not the right thing to do. Quite often how you respond to rejection is the difference between getting intros to more relevant investors / people who can help you in your journey and getting no help at all.
Assuming you’ve engaged the VC and they want to learn more, you’re either about to enter into the investment process or meet with other members of the fund to get their approval before moving into the investment process. At this point you’re ready to continue to Chapter #7 where I go into depth regarding key considerations for running a successful due diligence process.