Last Month, Peter looked at our deal funnel and gave an overview of our process from first conversation to close. In this piece I’ll be focussing on that all important first interaction and giving some top tips for getting a face to face meeting with the VC’s at the top of your list.
So you’ve figured out the shortlist of VC’s that you’d love to partner with (check out Jon’s useful article from earlier in the series, ‘Setting yourself up for fundraising success’ for advice on how to tailor your shortlist to help make the process easy and efficient), the next step is actually meeting them. Each fund will have preferred methods of communication (e.g. directly via email or filling out a form on their website) and slightly different views on what they look for, but generally there are things you can do to make this process easier and maximise your chances of getting a first meeting.
Who should I reach out to?
At the end of the day, it shouldn’t matter who you reach out to if your company is compelling enough and meets the investment parameters of the fund. It’s always worth being aware that each fund has their own investment criteria which is used to help with the process of screening deals. We often see exciting businesses that fall outside of our parameters (anything from wrong geography to sector), it doesn’t mean that they’re not great companies, they’re just not right for us. Having said that, there is always the chance that the VC’s internal systems aren’t perfect (!), so a personal introduction helps if you can find one. Maybe reach out to your prior investors, whether angels or seed funds — as many of them will know Series A VCs and will be more than happy to help with this. It’s also important to emphasise that warm intros are useful, but if the business is strong enough and presented well, it will pique interest and get that first meeting regardless.
Should I send a pitch deck?
It’s always helpful to include a teaser or short deck in any early communication, nothing too long, but the VC needs to get a good picture of the opportunity to be able to decide if it might be exciting. This teaser is a really important tool for presenting the business and team in its best light (though most VC’s will reserve judgement on the team until they’ve met them in person), so it’s important to get in as much relevant information as you can.
What’s going to get me that first meeting?
It’s all about getting the key details in, being informative enough for the VC to get a strong overall picture of the business, whilst piquing interest and further questions. As a general guide, when raising Series A, a good checklist (certainly one that we look for) would be:
Be able to demonstrate rapid growth: this is vital at this stage, simply because it says there is real demand for your product / service in the market.
Make sure the unit economics stack up: A good unit price with strong gross margins supports the case for market demand, as does low churn, and if customer acquisition costs are not too high then your key metrics like LTV / CAC and CAC payback will be attractive. Most VCs will recognise that you may need to penetration price initially. One business we backed recently had marginal unit economics when we backed them, but in the first two and a half years after their Series A they managed to put prices up fourfold. To some extent this is a natural development as a company gains scale and hence credibility but it is often also driven by continuing product development.
Know your competitive landscape: Present the competitive landscape in a clear way that demonstrates why your product / service is differentiated.
What metrics do VC’s look for at this stage?
It depends on what stage the business is at but generally we look for the following:
· Series A: it’s all about product market fit so we want to see win rates, conversion, new customers and revenue added. Then if there’s enough of a timeline, retention rate. If the business is B2C then we also look at the organic traffic and customer reviews.
· Series B: it’s all about route to market fit so we look at CAC payback along with a mixture of marketing and sales channels.
If you can support these ‘key tests’ with data, then they should definitely be included at this stage. However, make sure you present it in a clear way, label axes and don’t try to massage the data — a real negative for me is cumulative charts, especially for sales — it is an immediate red flag that the team is trying to hide variable monthly sales performance.
Similarly, try to avoid calling yourself the “AirBNB of X” or the “Uber of Y” — VCs see hundreds of businesses every year, and clichés like that start to get wearing. Make sure when you compare yourself to competitors the differences you highlight are genuine — it is too easy to work up a 2x2 with spurious criteria that puts your firm in a quadrant on its own, but VCs will see through it pretty fast and it will damage your credibility.
So, in summary, how do I maximise my chances?
1. Research your VC’s and make sure they’re a good fit for you, in terms of investment parameters but also values
2. If you can, get an introduction, it always helps!
3. Summarise your value proposition clearly and succinctly
4. Have a concise teaser /deck highlighting key economics, competitor landscape and growth
5. Be accurate and confident in your business — don’t massage the data, investors will see through this, know the strengths/weaknesses and be open to discussing them
Hopefully this has been a useful overview on how to approach your shortlist of funds and summarised the key details needed to spark a VC’s interest and land you that face to face meeting.
In our next piece, the Smedvig team will be giving insight, anecdotes and advice on creating the ‘perfect pitch’, sharing their personal experiences and tops tips on how to be ‘Pitch Perfect’.
If you have any questions or thoughts on the above, we’d love to hear from you, please comment below or contact us at firstname.lastname@example.org