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If you ever want to raise capital, establishing and maintaining relationships with venture capitalists is critical to making your life easier. You will need to meet with VC’s in your space months before you need to fundraise. It is a lot easier to pitch for funding once you have developed a relationship and trust. Develop that relationship before you need to fundraise.
This strategy also bypasses trying to fundraise last minute in a fit of panic, trying to extend your runway. Desperation is never sexy.
The good news is that building these relationships is relatively formulaic.
Step 1: Build a list
Identify active VCs in your space. In particular, identify firms you might be interested in doing business with down the line. You can start to identify prospective firms both online and through word of mouth. The open data platforms, like CrunchBase, are a great start. Look up the firms who have invested in your direct and indirect competitors (cross these off your list of potential investors) and companies in adjacent verticals (add these to the top of your list). Similarly, local venture conferences are a great location for a list of attending VC firms.
Not all venture firms publish their investments, so it’s also important to reach out to fellow founders and get lists of potential investors from them. Startups who have recently completed a transaction should have a fresh list of active firms. Reach out! Later on, when you are talking with VC, you can also ask them who they like to co-invest with.
Step 2: Cull the list
Once you have a list of prospective firms, dig in and identify their investment mandate and match it with your venture. Your goal here is to break up the list into three categories: Obvious Fit, Possible Fit, & Long Shot.
Obvious Fit: The stage of your company, your focus, and the size of the cheque you are looking for all match up perfectly with their investment thesis.
- Stage: beta or MVP product to market – we are looking for companies who have a product in the market, even if very early.
- Focus: we focus on financial technology. Focus is a common euphemism for “we only do.” In this case, we only do FinTech deals. Healthcare tech firms et al will want to strike us off their list.
- Size: we invest in rounds between late seed (a euphemism for $2M+ seeds) and early Series A (i.e., $6M). If you are raising outside this range we aren’t in your “Obvious Fit” list.
- Some firms only lead, some only follow, and some are indifferent. Looks like we lead deals. Given we called out leading in our boilerplate, I wouldn’t bet on our firm joining a syndicate.
- We use the words “taking the product globally.” That probably has something to do with our thesis. Local-only plays take note!
- The sharp founders will also read into how we describe our LPs (the fund’s investors) likely relates to the nature of the value-add we bring to the table.
- Lastly, you’ll notice we have offices in Toronto and Montreal. Good to know when thinking about locality.
Possible Fit: You have 2 out of 3 of stage, focus, and size.
Long Shot: Everyone else<./ul>
Typically most VC firms will publish their thesis or investment mandate in some form on their website, and sometimes it can even be found in press release boilerplate.
As an example, my firm, Impression Ventures’ boilerplate reads as follows:
- Impression Ventures is a venture capital firm with committed capital sourced from some of Canada’s leading financial institutions, entrepreneurs, and financial services executives. The firm is focused on investing and leading deals in financial technology companies (fintech), raising late seed to early Series A round and looking to take their beta or MVP product to market locally with a long-term goal of taking the product globally. Impression was founded in 2013 by entrepreneur Christian Lassonde and is co-managed by managing partner Maor Amar. Impression has offices in Toronto and Montreal.
This boilerplate tells you a lot about our stage, focus, and size.
There are a couple more details to be found in the boilerplate:
See how much info you can get from a simple boilerplate! Look out for these snippets of a fund’s mandate wherever you can find them. On their website, in press releases, in news articles, and even in Twitter or Facebook profiles!
Your time and energy are valuable resources. So cross off everyone on your Long Shot list. Don’t waste time on firms that will have no interest in you. There are hundreds of venture firms. Now it’s time to focus on your top two lists and get initial meetings.
Step 3: Get an introduction
Never send cold emails. VC’s, like most other professionals, rarely if ever read cold emails. Even if cold emails are read, they send the wrong message. While it may sound harsh, sending a cold email sends a message that you do not have the network or resourcefulness to get a proper introduction. It can diminish your credibility and indicate you are unfamiliar with the fundraising process.
Conversely, getting a warm introduction can help you quickly establish a measure of credibility. This is especially true if an introduction comes from the right individual. Leverage your contacts and networking events to figure out how you might get a personal introduction to a VC of interest. If you are a first-time entrepreneur or just short on contacts, it’s time to hit the event circuit.
Never send cold emails. Don’t take warm intros too far, either. VCs respond accordingly.
Start by focusing on firms located in close proximity to your startup. It makes sense that typically the first and easiest VCs for you to meet will be located geographically close to you. They are the ones who are most likely to attend pitch events, competitions, and conferences near you. Find out where firms on your lists might be attending events.
Go meet them at those events. Assuming you have done your homework on firms and funds, when you see a VC at an event, go talk to them! Remember, they are also attending to network and find opportunities. Help make their night valuable. This is where doing your homework on their thesis comes in handy. When you first approach a VC you are interested in building a relationship establish early credibility by making it clear you’ve done your homework. Maybe ask them a smart clarifying question about their thesis. Never presume to know it inside and out. Next tell them a bit about their business, that you’re not fundraising but always looking for advice from experts in their field. Mean it.
Second, approach venture firms with portfolio companies local to you. Same M.O. as above. Go meet the founders of the local firms at conferences or other casual events. Network and when appropriate ask them for introductions to their investors if they think it’s appropriate.
Lastly, do not overdo it on the warm introductions either. This appears to be more recent phenomena, but I’m now regularly getting pinged three or four times for the same deal. These founders have taken the warm introduction request too far, and again, it sends all the wrong signals. Don’t ask more than two people for an introduction to any one particular VC firm. If you don’t get connected within a month, then it might be ok to ask another pair for a warm introduction, but not before.
Step 4: Build a relationship
Once you’ve got a connection, make it clear you are there looking for advice and not a fundraising. When they give you their advice: listen. You don’t have to follow their advice, but you must acknowledge what they are saying.
That said, if they are a firm you want to do business with they will likely have experience and some wisdom, which will be relevant to you. Not only will you come across less desperate when you approach an opportunity in this manner, but you will also be more likely to catch their ear.
Once you successfully are introduced do not harass your new connection. Maintaining the relationship is important, but far too often people will go overboard. Do not enter into the time-wasting category. This is sure to irritate your potential investor. Keep in touch, keeping communications up when relevant and check in periodically. This may sound like Relationship Management 101 but it is important to remember. You want to build your company’s track record with a potential investor by checking in and keeping your interactions meaningful.
Success – you’ve gotten past the first introduction. Beyond this point, tailor your relationship as required on a per individual basis. Some funds will want to touch base periodically. Some will flat out say you aren’t a fit – in which case, move on. Some will want to be signed up for a newsletter. Everyone is different, treat them accordingly. Unfortunately, nothing is formulaic past this point.
As Christian highlighted, developing a relationship with VCs has numerous formulaic aspects – understanding the investor landscape, narrowing your focus to the most relevant (and realistic) funders, leaning on your network for guidance and introductions, and using your EQ to build relationships. However, it’s important to keep the human element in mind.
Relationships can’t be engineered and interactions can’t be gamed. Respect that there’s a human on the other side of the process; funding isn’t simply a matter of ‘data in leads to money out’. Investors have competing priorities from their portfolio companies, other startups they’re evaluating for investment, internal reporting that needs to be done, and hiring needs. In the same way that you map out your weekly priorities, investors are constantly asking themselves: “what’s the best use of my time this week?”
Focus your interactions on giving them a reason to prioritize you, which means tailoring your story, sharing the legwork you’ve already done on the space, and yes, building a bit of FOMO around the opportunity.
Photos courtesy Unsplash.