- Getting an investor to move from “not now” to “yes”
- Beware the bad investor
- All venture capitalists are not created equal
- Not much difference between angel investors and VCs anymore
- Friends rarely make the best business partners
- How to put a value on your technology startup
- There is only one way to meet a venture capitalist
- Raising capital is not always the only option
- How to attract the right talent to achieve financial success
- 5 facts to know before approaching venture capitalists
- How a venture capitalist knows your deal is weak
How you approach a venture capitalist (VC) can be the difference between receiving a quick glance or gaining direct attention. It can be very tempting to cold call venture capital via web search results or chase down a harried VC at an entrepreneur event. While those attempts may work, it’s a low probability tactic and just might ruin your shot. Ideally, you want to be referred to a venture capitalist.
Literary agents receive unsolicited submissions in enormous quantities. VCs may fund one of 100 deals, but literary agents take on one in 1,000 writers. The onslaught of submissions grows into a pile of dread called the slush pile, which is assigned to an intern to forage for the single nugget of value that may or may not exist within the depths of zombie love affairs and futuristic westerns. The agent instead invests time with submissions that arrive via referrals from writers they already represent and from other trusted sources.
While the bombardment from entrepreneurs may be of a lesser volume, the principal remains intact. The cold call and the chase down are the unbidden wash of noise that accumulates and escalates until meaning is lost and value fades in venture capitalist ears to infomercial hawkery.
Okay, fine, I’m overstating to make a point, but the fact remains that getting the attention of someone who is simultaneously looking to exit from a different deal while finding a new CEO for another, performing due diligence on a third while crafting updates to their institutional backers is not always a simple feat. Life’s not fair; get over it.
Create a list of VCs who focus their funding on your industry sector and stage of development. Identify the companies in the portfolios of these venture capital companies. If they are in your sector but not competitive to you, call them. Now it’s one entrepreneur calling another. Maybe they are a little further developed than you are. Call for advice and set up a formal meeting. Don’t veil your search for capital in meaningless questioning. You should be seeking advice wherever you are.
Of course, you’ll talk about capital, but make it part of a larger conversation. If that entrepreneur gets excited about what you’re doing, a real introduction is about to be made, and this is infinitely better than a cold call. When a portfolio entrepreneur sends a lead to the venture capitalist, there is now an obligation on the VC to stop, look and listen. There’s no surety of investment, but a referred deal from a trusted source will always get an audience. A referred deal cuts out 90 per cent of the slush pile. The person referring the deal has a reputational risk by referring a deal and therefore will only send over deals that have merit. The unspoken contract of a referral is that it is worth looking at and that the VC will actually take a proper look. Use it to your advantage, but, of course, you and your deal have to be worthy.
When you do get the opportunity to pitch, don’t waste your time or theirs. Be ready. Have a solid pitch that you can deliver in less than 10 minutes. Open with your version of ‘ABC Co makes wireless widgets for the baking industry and is looking for $1.8 million to expand our marketing reach’. Follow with one minute on each of the following: market problem, solution, size of opportunity of the solution, sustainable differentiation of the solution, competition, market approach, team experience and the ask.
If 10 minutes sounds impossible, you’re not ready. If you can interest them with a solid, concise 10-minute pitch, they’ll keep you talking for much longer. If you’re being thanked for dropping by and standing in the parking lot in minute 11, get better and try again somewhere else on another day.
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