Here’s a very common situation you’ve likely witnessed while fundraising:
CEO (over e-mail): “Hi Mrs. VC, I’d like to tell you a little about our company, ______, that is helping solve the problem of _______, a pain felt by millions of people each year. We’d love to come over for an in-person meeting to tell you more about how we’re changing the world.”
VC: “Sounds interesting… let’s do a 20–30 minute phone call first to see whether there’s a mutual fit. Can you schedule with our associate, Stephanie? I may or may not be able to dial in myself.”
As an entrepreneur, it’s understandable to view this situation as a bad omen or blow-off. Your company is awesome; can’t this investor wrestle an hour out of her schedule for the chance to bask in your glory firsthand? And what’s with this “associate” nonsense… you want to talk directly to the big kahuna!
Yet, consider the investor’s perspective. VC partners take a lot of meetings with entrepreneurs. Some are pretty good, but most never lead anywhere, and occasionally they’re just downright painful. A common VC refrain is “I think I’m wasting time with too many meetings that will never lead anywhere… Sure, some end up being good, but we need to screen more up front to stay efficient.” Hence: the initial phone screen.
Think of the VC phone screen as a first date. It’s a low-pressure opportunity for both parties to get to know one another and decide whether there’s enough mutual enthusiasm to escalate the relationship. You can’t jump directly into matrimony after the first date, but you can certainly torpedo your chances of a second date by showing up with spinach in your teeth and lice in your hair.
To help you get that second date with a VC (while keeping in mind that you can also break up with your potential investors at any point in the process), we’ve written a checklist of items to consider before the encounter:
1) Trim down your pitch deck.
You’re meeting for thirty minutes or less, and much of that time will be spent on building a general rapport. If you only have 15–20 minutes to talk through your slides, you don’t want to waste time blazing through a 40-slide deck and muttering “hmmm you probably don’t care about this slide… let me skip ahead a little bit… oh wait, crap, I think I missed it… just give me a second…”. Have something prepared that conveys your main points in 6–10 slides or less.
For some advice on building a more concise pitch deck, check out the following resources:
- The 10 most interesting slides that helped our SaaS company raise 9 million
- Opening our pitch deck that helped us get our $865M valuation
- 5 tips for building a pitch deck that gets you the investor meeting
- What should be in a pitch deck?
- What makes a compelling pitch deck?
Alternatively, you may decide to do away with the deck for the initial meeting and just talk off the cuff. This can be very effective, provided that you follow the advice in the next two bullet points…
2) Conduct some recon beforehand to establish common ground.
You’re on LinkedIn (everybody is). Have you looked up the person/people you’re having the call with? Anything you can do to get the conversation rolling will help get you that second meeting. Some ideas:
- “Hey, looks like we both know Susan… how did you two meet?”
- “You went to Michigan, huh… I bet you’re pumped about Jim Harbaugh!”
- “I read that you used to work at Salesforce; I have a ton of friends working there now. What did you think of it?”
Remember that you’re evaluating the investor just as much as he/she is evaluating you. If the investor’s responses to these questions give you the heebie-jeebies, you have every right to terminate the meeting and move along.
3) Have answers prepared to the following questions:
- When did the company start?
- Who are the other executives? What are their backgrounds?
- How many employees do you have?
- What’s your product, and why is it special?
- How complex and defensible is your technology?
- Who do you sell to? How do you (or how do you plan to) reach out to this group of people?
- How much do your customers pay for the product? How do you bill and when do your customers pay you (upfront, monthly, annually, etc.)?
- What are revenues / bookings / ARR? How quickly are they growing?
- What’s your cost of sales?
- How large are your operating expenses, and what makes up that number?
- How much cash are you burning each month? How much cash do you have right now?
- How much capital has been invested into the business to date? Was it debt or equity? What does the equity/option stack look like (i.e. who owns what, and who gets their money back first)?
- How much cash are you looking to raise, and what are your thoughts on valuation?
- What are your plans for those new funds?
You don’t need to bring up each of these points, but you should be able to answer all of them from memory if asked. VCs don’t expect you to know every key business metric off the top of your head, but saying “Sorry, I don’t have the ARR number in front of me right now, let me get back to you on that” is a really bad look. If you don’t instinctively know that number at all times, then what on earth are you paying attention to?
4) Avoid the following things:
- Excessive jargon. The moment you speak the words “cloud-based predictive analytics for big data”, you’ve lost your audience.
- Discussing exit strategies. We’ve just met, and you’re already planning the divorce??
- Suggesting that a major goal or task is somebody else’s responsibility and not yours. We once went to a meeting where the CEO said “The goal is to bring in $100k in new MRR this quarter. I hope that [the VP of Sales] can make that happen.” If you’re the CEO, this simply cannot be your attitude. You own every important number in the business.
- Insisting investors sign an NDA before hearing your idea. This has been covered many, many, many times already. Savvy entrepreneurs don’t keep their eyes to themselves; they empower others to spread the message on their behalf.
- Having your whole team on the phone call. There’s too many pitfalls to this approach: Investors have to memorize multiple biographies; they can’t tell who is talking at any given moment; and you run the risk of presenting a team dynamic that you didn’t intend to convey. You don’t want a VC asking him/herself questions like “Wasn’t it weird how the CFO did all the talking there and the CEO barely said anything?”
- Supplication. Yes, VCs have the money, and you want it. But your time is just as valuable as theirs, and both sides deserve equal respect. Approaching a VC with heavy flattery and groveling just makes you look needlessly weak.
- Anti-supplication. On the other hand, some entrepreneurs barrel into phone calls with venture associates by declaring that their time is being wasted and that they’d like to speak with a senior partner immediately. This is an equally bad look. Read this thread on Quora for more background on the right way to handle phone screens with non-partner associates.
5) And lastly… R-E-L-A-X.
Sure, technology investing is mostly about dollars and cents. But most businesspeople would prefer to work with people they like and respect. A robotic, business-only approach might not get you as far as a relaxed, conversational give-and-take. As angel investor Hampus Jakobsson writes:
“The founder(s) need to be people [you empathize] with and want to meet again. If you feel intimidated, ignored, bored, sad that probably is [a] good sign you shouldn’t. If you feel energized, inspired, or sometimes just have a really good time, then that is a good indication. You have been on dates, so you probably get it.”
Introduce yourself to potential investors the same way you introduce yourself to potential new friends — by appearing calm, likable, engaging, and easy to get along with. The fastest way to sabotage that is by succumbing to panic. So take a deep breath, chill out, and don’t take any of this too seriously. After all, it’s only a first date.