So, you’re thinking about pitching VCs…
In many ways, the fundraising process is like a B2B sales process. You’ve got to build and manage a pipeline of investors to close the “right fit.” That takes time. And though it’s straightforward, “this is a piece of the puzzle that so many people completely miss,” says John Pearce, Underscore VC Co-founder and Partner.
The key is to find investors and nurture relationships before you need funding. The sooner you start, the more freedom you have to explore and build relationships over time. “When you’re not desperate for cash, these conversations can become a two-way dialogue,” says Lily Lyman, Underscore VC Partner.
In this video, Lily shares an overview on how to approach VCs for funding.
In these conversations, you learn as much as you share. As you update investors on your startup (without oversharing or undersharing), you can also ask questions to qualify them as a good investor for you.
Build Your Pipeline
That starts with building your target investor list. “It’s good to start broad, but quickly narrow down the folks that you think would be the best fit,” says Richard Dulude, Underscore VC Co-founder and Partner. “Otherwise you might just be wasting your time.” As you do, think through:
1. Who is investing in your space? They could be blogging or speaking about your industry.
2. Have they invested in your competitors? If so, steer clear!
3. Could they bring value to the table? This could be in the form of domain, functional, or stage-related expertise.
4. Do other founders in their portfolio see them as valuable? Nothing better than hearing it from those they backed!
5. Who do you know that could introduce you? This could be through a portfolio company, an advisor, another venture firm, or any other connection.
Qualify Your Leads
Throughout these conversations, you have a golden opportunity to vet investors by asking open-ended questions. This list is by no means exhaustive, but here are a few prompts to spark inspiration.
The problem you’re solving:
– What do you see happening in X market?
– What were your thoughts on Y event, launch, or news?
– What trends are you seeing in Z space?
About the firm:
– Can you describe your firm’s organizational structure? Try to suss out if they’re gathering information, or if they have the authority to make decisions.
– What areas do you invest in? This could include markets, tech, business models, or people (first-time vs. repeat founders).
– What are your key criteria for investing? What metrics do you look for at this stage? Can you share examples, including outliers?
– What were the last couple of investments you made? Think through your own network; if you know someone at those companies, they can be a great reference or referral point.
– Where are you in your fund lifecycle?
An unusual investment outside their thesis:
– How does that fit into your thesis?
– Is that something we could complement?
– Is that something we would compete with?
Their investment process:
– What is your standard check size?
– When did you last make an investment of this size?
– Can you describe your diligence process?
– What is your decision-making timeline?
– Who is involved in this process?
– Do you have an investment committee, and if so who’s in it? Is there a veto?
– Do you do a deal memo or equivalent? If so, what’s in it? Can you share an outline that we can help you fill in?
How the firm supports portfolio companies:
– How do you like to work with your founders? Can you share some examples?
– What is your working style? Can you share some examples?
– What is your primary value add? Can you share some examples?
– Can you share a time when things went sideways in an investment? How did you handle it?
– Which founders could I speak with to get a better sense of how you work?
These questions should give you insight into how they think, their investment areas, how they support their investments, and more. All this insight will help you qualify them as the right investor for you.
Manage Your Pipeline
At a basic level, building relationships comes down to maintaining a consistent cadence of communication. If you’re organized, this need not take a lot of time. Consider tracking these conversations in some kind of CRM or spreadsheet (we created one in Coda you can lift for your own use). That way, you’ll always know who you spoke with, about what, and when.
In a first meeting, try structuring your update by sharing:
– This is what we’ve done.
– This is what we’re going to do.
At your next check-in (perhaps in the next quarter), you could share:
– This is what we achieved versus what we told you last time.
– This is how we’ll continue to drive forward.
Eventually, you’ll reach a point and say:
– We’re not ready to fundraise yet, but in the next X months, we will.
– This is what we’re going to achieve before we start.
Tip: Set reminders to follow up at a specific point in time.
Simple (But Easily Forgotten) Tips
Lastly, while straightforward, the following suggestions are still worth reiterating.
1. Be early for each meeting. If you’re meeting in person, set up the tech in the meeting room in advance so you can start the conversation on time. If virtual, make sure you’re comfortable with the meeting platform ahead of time. Fiddling with the AV or figuring out how to share your screen is not time well spent with an investor.
2. Send a follow-up email after each meeting. A simple thank you note goes a long way, especially when it reflects the personality of your meeting and effectively reiterates the next steps. Every exchange you have with an investor is an opportunity to build your relationship, so use each one to show your personality and responsiveness.
3. Remember that investors are people, too. Strong relationships are built on authenticity and trust, so get to know what matters to them and try to put yourself in their shoes. Great entrepreneurs create a comfortable space for investors to share honest feedback. In doing so, you will build a better relationship in the long term.
In following these best practices, you’ll be better prepared to find investors that will be a true value-add to your business.
