Secure the Bag: The New Rules of Raising Venture Capital
[This is part 3 in a series of 4. Before going any further, you may want to read Part 1: Do I really want to do this? and Part 2: Am I ready? And how much money should we raise? If you already know the answers to those questions and you’re ready to get started with your process, you’re in the right place.]
One thing I hear a lot from founders is how surprised they are that fundraising takes so much time, and that they had to talk to so many investors. Because the scope is so big and unwieldy, you’re going to want to build some structure into your approach.
In this post, I’m going to break down your process into a simple checklist.
Clear your calendar and get focused
It’s not unusual to spend three months (sometimes longer) raising, nearly full-time, and pitch three or four dozen venture capital firms. The more you can focus, the faster this will go and you can get back to building your company.
Assume meetings will take 3+ weeks to schedule. Start by lining up meetings with small checks (such as angels), then build up to the bigger checks. Plan to do four meetings a day.
Cluster your investor conversations as closely as possible: It’s more efficient for everyone and creates forward movement. When you’re in meetings w/ funds, you want to be able to say things like, “We started a few weeks ago and have $500,000 committed from angels. We have $1 million left in the round. We have 30 more investor meetings in the next two weeks and a few are in due diligence.”
Statements that are filled with facts and show momentum will indicate you’re serious, create a sense of urgency and get you to a yes or no faster.
You’re going to need to manage tons of introductions, meetings, assets and follow-ups, so it’s a good idea to create a CMS or spreadsheet to keep everything organized and moving forward.
Do your research
There are approximately 1,000 active venture capital firms today. Though many of them look alike, each one is a little different, and only a small percentage of them will be a good fit. Some are looking for network effects as long as it’s not social media. Some invest in mobile but nothing addictive. Some invest in hardware but only if there’s a software subscription. Others want frontier tech as long as it’s not capital intensive.
Do your homework to find out which investors are looking to invest in businesses like yours.
It may take some digging. While some firms are clear about stage, sector, focus and POV, the vast majority have vague or disjointed investment strategies and are hard to figure out.
First, check out the firm’s About page on their website. Then go through their Company or Portfolio sections to see if you can piece together their strategy by searching for common threads among their portfolio companies. Many VCs blog about their companies, so take a look at their News section to see how they talk about their recent investments. Most VCs are also on Twitter, so follow them to learn what companies and themes they talk about. Consult resources like AngelList, Crunchbase, Micro-VC list and Seed VC list. Ask friends, former coworkers and your earlier investors and advisors for advice and introductions.
Go a little deeper
In addition to making sure you fit within their investment thesis, you also want to make sure they’re a good fit on a deeper level. Look at the backgrounds of the partners to see if they have experience or networks that can help you, and/or portfolio services teams that can pitch in on marketing, recruiting or business development. Most importantly, try to determine which investors have similar points of view to you about tech, your market, company building and governance.
A VC’s “thought leadership” content may give you some clues, but most people aren’t as self-aware as you’d like. You’ll get the most valuable information from backchannel references.
Build your list — and be discerning
Run your fundraise process the way you would run a sales process. Many of you already know how to build a system to reach business customers. It’s a similar setup for fundraising. Create an ideal customer profile (known as an ICP) for your prospective investors. Don’t add every name of every VC you’ve ever heard of or met. Target those for whom you will be the best match. For which VC firm are you likely to be in the top 1% of their pile? Eliminate the ones where your chances are slim.
Every investor on your list should be a target investor for this round.
If you’re raising a seed round and an investor who’s focused on Series A deals reaches out, they’re likely fishing for information and won’t invest until you have more traction. Don’t put them on your “now” list. It’s fine to lightly engage and keep them warm, but bump them to your “next round” list.
Make Initial Contact
Now that you’ve got your list, it’s time to connect. Here are a few tips on how to make a successful first contact with a VC:
- Get a warm introduction. This is, of course, your best shot at getting a foot in the door. Use LinkedIn to see if any of your friends, former colleagues or advisors are connected to VCs you want to get to know. If you don’t yet have a rich network, find other ways to engage with investors. Follow them on Twitter and comment on their blog posts. Go to their events.
- Personalize cold emails. Most VCs do read all of the emails that come to their inbox, but not if it’s a generic copy/paste with 100 people in the bcc: line. Address it only to the investor you’re targeting and add personal touches about their recent investments or content they’ve published.
- Write tight. Create an investor blurb and capture all they need to know in two to three paragraphs. Think of this as a cheat sheet to your pitch deck: What’s the problem that you’re solving? What’s unique or different about your solution? How much traction do you have? Who’s on your team? Where are you with fundraising? Include your pitch deck. Many VCs won’t take a meeting without it.
Now you’re ready for the final stage of the fundraising process: The pitch and follow-through. It can be a nerve-wracking experience, but in my next piece, I’ll coach you through it so you feel more confident in your approach.
If you can’t wait for my next blog post (a weekly 4-part series), you can watch a talk I recently gave to seed stage founders on fundraising below or view my slides here.