Twenty-sixth in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital. We expect the series to run for a year after which we will collate the posts into a book. You can find the rationale behind the series here, and the list of questions here. We welcome your comments on any and every aspect of what we are doing.
Startups presenting business plans to VCs have a much better chance of getting a meeting and maybe an investment if they know the VC already, so the first answer to the question “what is the best way to approach a VC?” is to get to know them before you want to pitch them for money. My co-author in this series Nicholas Lovell likes to say, ‘VCs invest in lines not dots” by which he means that if when you come to ask for money a VC can see how the story you have told her over the last 6-12-24 months has unfolded more or less according to plan (i.e. a line), or that if the plan has changed the changes have been sensible, then your credibility will be much greater than if the assessment is solely based on a plan received at a point in time (i.e. a dot). UPDATE: Nicholas rightly tells me I should credit Mark Suster with the ‘lines not dots’ analogy, see here for his post on the subject.
The best way to meet a VC so you can begin the process of drawing a line for them is to get an introduction. Most VCs have a small number of people who they know well and trust and if they send an email saying “you should really get to know XYZ company” then the company will get a meeting and the relationship has begun. Most VCs also get lots of emails from people they don’t know quite so well suggesting meetings of one sort or another, so be prepared to do some work to make your business sound attractive even after the introduction. The next best method of beginning to draw a line is to hang out in the places where VCs hang out and get to know them. Every city with a startup scene has regular events and mixers where VCs go to network and meet with interesting startups (check out StartupDigest for a list of events in your area). These events are a curious blend of work and social so don’t over-pitch. It is better to build a relationship and let the details of your startup emerge over time.
If you need to get straight on with fundraising and don’t have time to build a relationship first, then getting an introduction is still the best method of making contact with a VC, followed by networking, then sending a cold email or making a cold call. Most VCs try to reply to all incoming emails and calls requesting investment, but in practice calling or emailing cold has little chance of success. If you don’t have a good network of VCs, and can’t find a friend who does, then an hiring an advisor is the next best way to make contact quickly – see Nicholas’s post last week 50 Questions: Should I hire an advisor?
Turning to tactics, it is important to recognise that just about all good VCs are ridiculously busy. Anyone with profile gets inundated with requests for meetings from startups, service providers, and other investors and they have to trade off time spent in those meetings with helping their portfolio companies, internal partnership matters, and time spent networking and speaking at conferences and other events. The first implication of this busyness is that VCs don’t get to meet as many startups as they would like and regularly turn down meetings with companies with promising prospects because they have to focus time on meeting other companies that look more promising (and hence a ‘no’ now isn’t necessarily a ‘no’ forever). The second implication is that VCs have to make quick decisions about which meetings to take which makes the structure of any contact important – the chances of success will increase significantly if the key messages are compelling and leap out of email, business plan, or conversation.
Finally, it is worth spending time working out which partner within a fund to target. A lot of VCs have a reasonably public profile these days and it is easy to find out which sectors they are interested in, and if you can go straight to the partner who is most suited for your business you will have a much greater chance of success than if you start with one of his partners and get referred across. Just about all VCs list out the investments each partner has made on their websites, which will also give you a good idea.