Finding the Right VC
Plunging in a Series A funding round typically means two things. For starters, you’re on the brink of a massive and profitable (hopefully) business venture. And secondly, you’re likely losing sleep because of all the details on your to-do list. Before attempting to tick off any more tasks, let’s slow down and talk about finding the right venture capitalist (VC) investors for your company.
Naturally, when you’ve decided to take the plunge into Series A funding, one of the steps along the way is to choose VCs who will effectively help your business grow. Spreading your net wide may seem like the most comfortable stance. However, according to most VCs, that’s not always the best route to take.
In this second blog post of our Series A funding series, we’ll outline the art of finding the right VC for your professional future and what it takes to make that relationship happen. As in the rest of our series, we’ll feature insights from a seasoned VC investor—Mike Rogers, partner at Interplay Ventures.
First of all, keep in mind that not all VCs are created equal. For example, some investors are particular about the markets they support. Many VCs are thrilled to include some industries in their portfolio while openly rejecting others. Just like you thrive in your professional niche, they do as well.
So, randomly shooting off a pitch deck to any and every VC is far too scattershot an idea to be worthwhile. In short, the wide-net approach will waste your time. Here’s what you do instead.
Firstly, reel in any ideas you have of “throwing stuff at the wall” just to see what will stick. Finding investors that fit well with your company isn’t your typical sales pitch. What’s more; is that this isn’t merely about who will invest money in your company. This venture is also about fulfilling your professional wishlist, per se.
For example, what do you plan on doing with the money you raise? If you plan to use the capital to grow and expand, then do you need more than dollars to achieve your goals? Perhaps, you also need strategic guidance or connection from a VC who knows the industry inside and out.
Although you might be an industry expert, a VC with loads of experience in this particular market can transfer knowledge and wisdom to you. Not only can this approach save you time and effort, but VCs are well-known for investing far more than greenbacks to their portfolio companies.
An excellent way to know whether your goals align with a specific firm is to review the founder’s bios. You can quickly learn about what value they can add to your company. As mentioned, high-profile VCs have the potential to transfer their credibility, which is something that you want! Often, investors are strategically vital to a company’s growth, such as:
Let’s be real: no one VC’s money is greener than another, and yet, money isn’t the only deciding factor. To get in the thick of this funding world, you must network, especially if you want to get a feel for what VCs would work well with your business.
Reach out to other entrepreneurs and small business owners to learn about their experiences. You’ll undoubtedly hear some strong opinions on VCs (and other vital topics, too!). Go to events where VCs frequently attend, and rub shoulders with them (think happy hours, pitch competitions, holiday parties, startup conferences etc.) Investors are typically highly social people, so finding them isn’t an impossible feat.
Keep in mind that you don’t need to ask anyone for money at the start. However, it’s not a bad idea to have a prototype for your product or service already prepared. Many VCs enjoy seeing the infancy phase of a new endeavor. Plus, it’s an excellent opportunity to explain that you’re not looking for funding now, but that you will be in the coming months. This approach plants a seed in their minds, per se.
Many venture capital experts will tell you that finding the right VC fit is a lot like dating. You must hone in on the traits you want in a partnership, and you’ve got to take the time to attract those specific relationships, as well. Sure, lots of fish swim in this particular sea. Still, it’s not exactly like logging into a dating app, swiping right, and calling it a day. There’s a process—but you’re dealing with numbers, too.
According to Mike Rogers of Interplay Ventures, it’s essential to know what industries a specific VC support. For example, Interplay Ventures call themselves generalist or industry-agnostic. Rogers explains, “We typically invest in companies that fit in the bucket of things that generalists understand. So you cut the edges off of things that require a Ph.D. or some super technical degree.”
It would be foolish for anyone outside of this generalist realm to nurture an investor/investee relationship with Interplay Ventures because it’s not going to work. When you’re searching for the right fit, you must narrow your aim.
Although software remains the most popular sector, it’s share of deal count has dropped below 40%. Keep in mind that traditionally, VCs invest in their home market; 50% of US deals are made in the investors’ home state. So, locale plays a large part, as well. Research the type of businesses and industries a VC supports, which leads to the next point.
To get a good feel for the kind of company a specific investor will and will not support, take a look at what they’ve done in the past. Some excellent questions to ask include:
Not that you need to be identical to the companies an investor has backed in the past. However, doing your research helps to clue you in on what that investor is all about. Also, take a look at their pre-VC experience, as well. This approach will uncover the VC firm’s convictions and professional tendencies. But dig more in-depth than a VC website because often they’re not incredibly informative and merely put forth a generic face.
Lastly, review the founder’s bios to learn about what value they can add to a portfolio company. Remember that high-profile VCs have the potential to transfer their credibility, which is something that you want!
At this stage, you’ll want to have a target list of potential VCs. At the very least, you need a checklist of traits that are minimum requirements. Keep it in a Word doc or jot it on a coffee shop napkin; it doesn’t matter. However, it’s essential that your professional radar is active, and you know what your business needs from a VC to move forward.
Getting an introduction with an investor typically requires networking, as mentioned earlier. Here’s the thing about VCs, according to Rogers, “VCs are, by nature of their business, very well networked. That’s kind of the business.” So, making acquaintances with a VC isn’t an impossible feat.
An excellent strategy for getting an introduction is to find a way into a “VC community.” In other words, network with the same crowd as a VC. Landing a warm introduction this way might seem a little more natural as opposed to a forced interaction.
Sometimes, business owners fall back on cold emails as a means of getting a first introduction. While cold emails aren’t the dreaded doom, some claim them to be; they also shouldn’t be your go-to move to connect with a potential VC. The best introductions come from people a specific VC knows and trusts.
Remember, you don’t have to rub shoulders with a VC literally. After all, it’s hard to travel the country endlessly merely to chase down the “right crowd.” Instead, lean on social media, such as Twitter or LinkedIn. Of course, proximity makes things easier, so connecting with a local VC is an excellent idea, too. That said, consider online networks, such as Meetup, to get you started.
When you do get a shot at talking with an investor, it’s essential to ensure the interaction is right from the start. As you know, first impressions fade slowly, and you want to make an impacting one.
What’s more; is that this first meeting is your chance to plant a seed in the investor’s mind. As mentioned, it’s not a bad idea to have your product or service prototype ready for your initial connection. At the very least, have a solid elevator pitch ready. Here’s how.
Put together a meaningful pitch that includes all the details of your business story, product, and professional plans. At the start, this pitch draft might be enormous—more book-like than reminiscent of a professional pitch. That’s okay.
Next, take the time to chip away at the “fluff” in your pitch, cutting it down to a shortened resume. When it comes to word slinging, you want your elevator pitch to say a lot in a few words. You may only have a few moments with a VC, after all. So, you need to be a quick draw and precise.
Venture capitalists tend to avoid negative behaviors, such as selfishness and arrogance. Mainly because these traits harm their potential for future success. The best VCs are in it for the long haul, helping entrepreneurs and pursuing endeavors that are good for everyone involved. Have the same respect for them when you talk about your venture.
Take Rogers’ advice regarding VCs,” And they all, for the most part, know each other, and they have good relationships with folks they like to do deals with.” Playing the good guy is a part that catapults specific VCs to the forefront of this game. A straightforward and respectful approach is always the right one.
As mentioned in the first blog post of the series, having a compelling story is a massive part of your pitch deck. To increase your funding chances, remember always to keep things real. This approach might seem apparent, but some professionals make the mistake of underestimating how impacting “being human” genuinely is. If you want to nail your elevator pitch, give up the perfectionistic and robotic method.
Understand that teaming up with a VC firm is precisely that—teaming. You’re both in this for monetary profit, and there’s no reason to sugar coat that fact. However, any business owner (and VC) will tell you that there’s more to it than that. Matching convictions or values is essential in this endeavor. You both give, and you both get, so come into this with a team player approach.
Even when you can’t meet a VC via a typical warm introduction, an equally essential and impacting strategy is to be prepared when you do meet initially. According to Rogers, your preparedness will prompt an investor to think, “Hey, I should spend 30 minutes or an hour with this person.” He goes on to advise that you want to be the “needle in the haystack,” sticking out to a VC because you are ready for this venture.
Just like your mom told you about playing the piano, you must practice if you want to play the piece flawlessly. When we’re talking about pitching to a VC—even an elevator pitch—flawlessness is undoubtedly your aim. To iron out the wrinkles, perform your elevator pitch to other founders or fellow business associates. This approach will motivate honest feedback. Plus, they’ll help you to identify any obstacles or hold-ups you might face when you present it to an actual VC.
Prepping for a Series A fundraiser might feel like trying to complete an endless to-do list but think of it as a new push into the next professional dimension. Yes, it might be uncomfortable for a brief moment, but this journey could be precisely the game-changer your business needed.
As your company evolves and you take on new professional endeavors, you’ll face unique exposures, as well—especially during a Series A growth spurt. Founder Shield specializes in knowing the risks you face at each stage of development, and we work to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you.
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