AMA Series: Hacking the VC process (or how to maximise your chance of getting funded)
TL;DR: There are no true hacks to getting venture investment. However, these tips and tricks from our recent “Ask me anything” webinar should help illuminate how the world of venture works. We hope this transparency is valuable to you in your fundraising journey.
1. Securing meetings
1a. Use LinkedIn
Although warm introductions are preferred, LinkedIn’s search filters can help you find relevant investors. Filter by secondary connections and relevant keywords related to your sector or business model. Approach outreach as a structured sales pipeline, with customised intro messages or emails tailored to each recipient. Referencing previous investments, and expressing genuine interest in their work increases the likelihood of them reading the entire message. Although sending fewer messages may seem counterintuitive, focusing on quality over quantity ensures higher engagement. Others might send hundreds of generic emails, but your conversion rate will be 10x higher if you truly personalise your outreach.
1b. VC or networking events can help build connections and visibility
Demo days or events like our Female Founder Office Hours can help you connect with multiple investors. Resources like Fund Finder by Concept Ventures provide a useful list of funds, allowing for easy filtering based on stage and sector. Landscape.vc is a review site for VCs, similar to Glassdoor.
1c. Angel investors demonstrate momentum
Starting with the angel community is an opportunity to practice and refine your pitch in a friendlier and less process-driven environment. Angels often have relevant contacts and can set up warm introductions. Commitments from angels before engaging with VCs allows you to enter meetings and your round as a whole in a stronger position.
1d. VCs who reach out to you can help you hone your pitch
When investors proactively reach out, it is generally advisable to wait until you have something significant to show them before engaging. This doesn’t necessarily mean waiting until you are actively fundraising. A milestone such as a polished version of the product or a small user base is enough. Use the conversation as an opportunity to test your messaging and gather feedback. Clearly communicate that you are not currently fundraising but value their input for future reference, indicating a potential fundraising timeline.
2. During a call
2a. The best fundraising calls are one-to-one
The ideal scenario for initial fundraising calls is a one-on-one interaction between a founder and an investor. This setup is generally more effective than having multiple people on the call. If the investor becomes sufficiently interested, you can consider involving a tech co-founder in subsequent calls. While brokers can provide valuable network connections and assistance behind the scenes, their passive presence on fundraising calls can suggest a lack of control or dependency. If you do choose to work with a broker, we’d suggest telling them that their participation in VC calls is not required or desired.
2b. Storytelling matters
We’re not saying you need to go in like Adam Neumann, but you should be able to articulate a compelling vision that resonates with investors and shows your ability to paint an inspiring future. Convey your big vision while highlighting tangible accomplishments, no matter how small, to support it. For example, showing traction through a significant number of signups from a specific target audience within a short period can validate your ideas about the problem or solution.
2c. Understand the VC process
Speaking the language of venture capital and asking the right questions shows you’ve done your research. Firstly, this entails researching the internal mechanics and processes of VC firms. This includes understanding the journey from initial outreach to partner meetings to term sheet negotiations. Each fund may have slight variations in its processes. Ask about the specific steps and decision-makers involved in the fund. Secondly, it involves being knowledgeable about the VC business model, such as exit scenarios and the metrics VCs typically consider at different stages.
At Playfair, our internal review process typically begins with founders submitting their deck through our website’s inbound typeform. Our team reviews the submission and conducts an initial 30-minute call, typically with an interested team member who reads the deck. If the call goes well, a review is written and presented at our internal investment meeting, where the team discusses the next steps. The next stage involves a 45-minute call with a more senior and junior team member, who come prepared with targeted questions. Following this call, the entire team reconvenes for a pipeline meeting to further assess the opportunity. If this goes well, a final two-hour call is scheduled, during which specific areas of the business are explored. Subsequently, an internal Investment Committee meeting is held, where the team decides whether to invest. If the decision is positive, we move forward with the founders and the real hard work begins!
3. Red flags
It varies from investor to investor, but there are a few things you could say that will result in a hard no.
3a. Not aiming for venture-scale outcomes
Always emphasise the potential for large-scale outcomes. Nobody really knows what that number will be or when that exit will happen. Those are things that are outside of your control. What is in your control is picking a market that is big enough to have that large-scale exit. Although achieving a medium-sized $100 million exit is a major accomplishment, VCs will likely quickly dismiss such proposals.
3b. Rambling
It’s natural to be passionate and detailed about your startup, but extended monologues risk losing investors’ attention. Being concise and focused is crucial. Aim to set out the main points clearly within a minute or two. Remember that investors approach your business with fresh eyes and rely on you to provide the right level of detail to generate excitement without overwhelming them.
3c. Lying
It sounds obvious, but founders don’t always strike a balance between promoting themselves and being truthful. There’s a thin line between highlighting the potential of your company and the enthusiasm of clients and making false claims. We’ve come across founders misrepresenting their achievements or revenues. These deceptions always come to light in the end. We’ll be working closely with founders for several years, so want to establish a trustworthy foundation from the start.
Similarly, if you’re speaking to several VCs at once, be honest about what stage your negotiations are at. Don’t try to create fake FOMO. As investors, our role is to fit our process within the founder’s timeframe, so keep VCs fully informed about your timelines and ensure they’re aware of any time-sensitive deadlines from other term sheets.
4. FAQs
4a. Can founders keep working at another job?
Building an extraordinary, high-growth startup requires full-time dedication. The chances of achieving exceptional outcomes while working part-time are extremely low compared to those who focus on their ventures full-time. However, it’s possible to raise investment under the condition that the founder commits to quitting their job once the investment is finalised.
4b. Do you need a CFO in the pre-seed stage?
No. However, it can be helpful to have a financial controller or bookkeeper, even on a fractional basis, to ensure clear finances and maintain a solid financial model. While an impressive financial model alone will not secure investments, it’s important to have one in place, or at least a basic template covering revenue projections, hiring plans, and cash flow runway.
4c. Can solo founders get funding?
Solo founders without technical expertise might find it more difficult to secure funding, but it’s not impossible. Outsourcing technology can be viewed as a hurdle by many VCs, as it can slow down the process and lead to increased costs. If a solo founder chooses to outsource, it is crucial to present a clear plan to address these concerns. This includes having a well-defined MVP, identifying the future CTO with a confirmed commitment to join post-funding, and outlining the structure of ownership within the business.
5. Dealing with rejections
Receiving rejections in the fundraising process can be disheartening, but it’s important to separate genuine concerns from blanket rejections. There are two common reasons for vague rejections. Firstly, some investors may not fully understand the business but are reluctant to admit it. Asking an investor to articulate your pitch back to you can help gauge the validity of their feedback. Personal biases and subjective judgments also come into play. Some investors may not resonate with the founder or perceive them as the strongest fit for the team, leading to a rejection based on subjective preferences. Other investors like to invest in former founders or people who’ve worked at blue-chip tech companies, essentially to derisk their investment.
