Unless you’re bootstrapping it, you’re well aware that the fundraising process is frustrating, draining and stressful—yet when it, literally, pays off, you’re on top of the world.
To help you get to the “funded” stage, I’m sharing some key insights into how founders and CEOs can build successful relationships with venture capitalists.
These insights come from General Catalyst’s Larry Bohn, Sequoia’s Pat Grady and Scale Venture’s Stacey Bishop, who recently spoke at HubSpot’s INBOUND15 last week.
Look for a Connection
Bishop said she gets around 1,000 pitches every year from startup founders who want Scale Venture Partners to invest in their businesses.
She and her partners meet with approximately 500 of those founders.
How do they choose who to meet?
Well, a huge factor is whether or not those factors had a “warm intro,” i.e. they’ve been recommended by friends, VCs, other founders, CEOs, angel investors, etc.
As Grady explained, “The people who get introduced to VCs by high-quality connections are the ones who get to meet with VCs.”
So when you’re looking for money, start with your network.
- Use LinkedIn to see if you have any second- or third-degree connections who work at VC firms.
- Ask fellow founders if they can introduce you to anyone.
- Go to tech meet-ups and networking events.
- Look on the portfolio pages of VC sites to see who they’ve invested in, then reach out to the CEOs of those startups and suggest coffee. If that goes well, you can ask for an intro.
- Use Twitter, Facebook, and LinkedIn to see who your target VCs are interacting with, and either find a connection with them or make one.
Do Your Research
However, Grady, Bishop and Bohn all said that while connections go a long way in getting the meeting, there’s another strategy for catching a VC’s attention.
Look for VCs who have expressed interest in investing in your startup’s space.
This interest could be blatant—Bishop said her firm expressly states the types of companies it wants to invest in on its blog. Or it could be inferred.
For example, you’re the founder of a SaaS startup, and you notice a VC has tweeted an article about the rise of SaaS companies. It’s safe to assume he’d probably be interested in hearing about your product.
In addition, find VCs who have a background in your area. Let’s say your startup helps people rent out their unused electronics. You should research investors who are familiar with the sharing economy or consumer electronics—or ideally, who are familiar with both!
Finally, don’t be afraid to ask other people in the startup world for VC recommendations.
A simple, “Hey, we’re thinking about doing a round of funding—I’d love to get your thoughts on which investors might be a good fit,” can do wonders.
Send the Right Email
There’s a lot to say about your startup: why you have product-market fit, how your team members will make you successful, who your competitors are and what your competitive advantage is, when you’ll go to market… The list goes on.
Unfortunately, if you try to put all of that information—or even one-fourth of it—in an email to a VC, you’ll never get any replies.
Make your email short. Grady recommends summarizing why your business is a good idea in one sentence.
Follow Up
Let’s say you use these techniques to score a meeting with a high-profile VC.
Not only does she seem super interested, but she promises to talk to her founders and “will be in touch soon.”
You go home and wait—and wait, and wait, and wait. The call never comes.
Unfortunately, many founders are under the mistaken impression that once they’ve made their pitch, it’s the VC’s turn to act. But remember how many business plans and pitches VCs review every year?
On top of that, the average VC is also a member on several boards and a mentor to the companies in his or her firm’s portfolio.
Unless the VC walks out of the room thinking your startup is the next unicorn (in which case, you’ll probably have a term sheet by the end of the week), then you should assume the onus is on you to follow up.
The first email you send—ideally, the day after the pitch—should be relatively straight-forward.
For example:
Hi John,
Thanks again for the opportunity to explain Cloud Garden. Let me know if you have any further questions or concerns I can address. I look forward to hearing from you.
Best,
Sierra
If you still don’t hear anything, wait two weeks or so and then send another email along the lines of:
Dear John,
Great news! Cloud Garden is now integrated into Slack, which should definitely help us get traction. I’d be happy to speak about this development, as well as other things we’ve got in the pipeline. Just let me know.
Cheers,
Sierra
At this point, if you still don’t get a reply, you should probably assume the VC isn’t interested. But that doesn’t mean you have to give up on a future investment.
In contrast, you should make it one of your responsibilities as a founder to build relationships with VCs. That means volunteering your help, resources, and connections (which will help you stay on their radar and create a sense of obligation.)
Take the John-Sierra example. Sierra knows from her research that John is interested in the Internet of Things, so one month later, she sends him the link to a startup that’s creating a sophisticated machine-to-machine security system.
John ends up investing in the company. He’s grateful to Sierra, so he introduces her to another VC who funds Cloud Garden.
And that’s how you can turn an unsuccessful pitch into a successful one.
Think Ahead
Don’t just look to people who can help you now—look to people who can help you later.
Different firms like to invest at different stages of the startup life-cycle: some like to invest at the idea stage (high risk, high reward), while at the other end of the spectrum, some like to come in relatively close to the exit (lower reward, lower risk).
No matter what stage your company is in, you should be thinking about who might want to invest in the next two stages.
There’s no low-effort way to do this. You have to, again, carefully research VCs and their firms to find the ones who will be interested in your startup several months from now.
This is a daunting task, but you don’t have to rely purely on word-of-mouth reports and what you find on the internet. You can also ask.
Here’s a sample email, which brings all of the techniques discussed above into play:
Dear Lindsay,
John Tan, the CTO of Scalent, recommended I speak to you about my startup, Solve.
Solve is an enterprise analytics platform that brings together all the company’s data in one place and helps you identify where you’re losing money.
We’ll be raising a Series C round sometime next spring, and before then I’d love to get your thoughts on our strategy, pricing model, and product.
I’d be happy to meet whenever and wherever convenient for you.
Thanks,
Cam Green
P.S. I saw on Twitter that you’re a big fan of wearables—think you might like this connected ring.
With these tips, you should find your path to the term sheet a little clearer. Good luck, entrepreneurs.
Frequently Asked Questions (FAQs) about Approaching Venture Capitalists
What is the best way to approach a venture capitalist?
The best way to approach a venture capitalist is through a warm introduction. This could be through a mutual connection, an entrepreneur in the VC’s portfolio, or a trusted advisor. It’s important to have a solid business plan and a clear vision for your company. Be prepared to discuss your team, your product, your market, and your financial projections. Remember, VCs are looking for high-growth potential businesses, so you need to demonstrate how your business can achieve this.
How do I find the right venture capitalist for my business?
Finding the right venture capitalist involves research. Look for VCs who have invested in businesses similar to yours or in your industry. Check their investment criteria, their portfolio, and their investment stage preference. You can find this information on their websites or on platforms like Crunchbase. Once you have a list, prioritize those who are the best fit for your business.
What should I include in my pitch to a venture capitalist?
Your pitch should include an executive summary, a description of your product or service, a market analysis, a marketing and sales strategy, a financial projection, and information about your team. Make sure your pitch is concise, compelling, and clearly shows the potential for high returns on investment.
How can I prepare for a meeting with a venture capitalist?
Preparation is key when meeting with a venture capitalist. Understand their investment focus and portfolio. Be ready to answer questions about your business model, your market, your competition, your financials, and your team. Practice your pitch and be prepared to discuss your vision and strategy.
What are the common mistakes entrepreneurs make when approaching venture capitalists?
Common mistakes include not having a clear business plan, not understanding the VC’s investment focus, not being able to articulate the business’s value proposition, and not being prepared to discuss financials and projections. It’s also a mistake to approach a VC without a warm introduction or to send a generic pitch without personalizing it to the specific VC.
How long does the venture capital process take?
The venture capital process can take anywhere from a few weeks to several months. This includes the initial contact, the pitch meeting, due diligence, term sheet negotiation, and closing. The timeline can vary depending on the VC and the specifics of the deal.
What is due diligence in the venture capital process?
Due diligence is the process where the VC thoroughly examines your business before making an investment. This includes reviewing your financials, your market, your product, your team, and your legal status. It’s a critical step in the VC process and can influence the VC’s decision to invest.
What is a term sheet in venture capital?
A term sheet is a document that outlines the terms and conditions of the investment. It includes details like the amount of investment, the equity stake the VC will receive, the valuation of the company, and other key terms. It’s not legally binding but serves as a blueprint for the legal documents to be drafted later.
What happens after a venture capitalist invests in my business?
After a VC invests in your business, they become a partner in your company. They may take a seat on your board and will likely provide strategic advice and guidance. They will also expect regular updates on your progress. Remember, a VC’s success is tied to your success, so they have a vested interest in helping your business grow.
Can I approach multiple venture capitalists at the same time?
Yes, you can approach multiple VCs at the same time. In fact, it’s often recommended to increase your chances of securing funding. However, it’s important to be transparent and respectful to all parties involved.
Aja FrostAja Frost is a writer, tech/design geek, and podcast addict. Check out her site or say hi on Twitter.
