This is the second post in a series on “raising VC money.” For the list of topics we are covering, click here. This post will cover “how to get the VC meeting.”
So, after doing all of your homework (more on that here), you now have a short list of VCs with whom you’d like to meet. What now?
Unfortunately, the more senior and experienced a VC becomes, the busier he gets. I wrote last week about how slammed senior VCs are. I thought I’d expound on that.
First, an experienced VC is usually on 10 to 15 Boards (I have some data here). This involves: attending Board meetings, having interim calls and meetings with management teams, interviewing candidates, handling in-bound press calls, approving compensation proposals, making introductions to key partners and customers, updates to the VC partnership on key events, and helping management raise its next round of financing. Moreover, in a group of 15 companies, two or three are likely to be in “crisis mode,” and these companies will absorb huge amounts of time.
The VC firm may have broad scope. If a firm invests nationally or abroad, tack on a lot of airport and flight time, both for Board meetings and evaluating new investments. Then, add the recovery time needed from jet lag, and the crush of to-do items that awaits the VC when he returns.
In addition, the VC has firm-wide responsibilities. These usually include a weekly partners’ meeting at which investment decisions are made, multiple meetings to help partners screen potential investments, quarterly report-writing to the investors, preparing for a very important in-person Annual Meeting with all of the firm’s investors, review of the firm’s marketing activities, and any and all HR issues.
A VC is also taking meetings with potential new investments, and doing due diligence on the most promising ones. A VC at any point in time usually will be conducting research on six or more new investments at the same time.
VCs are often at outreach events, speaking on panels and going to networking events. Also, many blog and Tweet.
Moreover, VCs are often approached to join non-profit boards. Many of these charities are extremely worthwhile, and so, many VCs sit on two or three non-profit boards. A private school to which the VC sends his children is often on that list.
Last, if a VC firm is fundraising, it is enormously stressful. Once fundraising starts, there is a huge incentive to finish quickly, so that the new fund is not perceived as stale by the market. A large VC firm will divide into sub-groups and the teams will travel around the globe giving their pitch.
Partners are often “on call” during this effort, which means they drop everything if a potential investor wants a meeting or a call. Prospective investors often have data requests that need attention.
Also, there is a prolonged and complicated internal negotiation on the economic splits in the new fund. Who gets what percentage of the fund’s carried interest and the management company’s cash flow (for more on how VCs are paid, click here)? Who is fired?
Another complication to VC fundraising is that many institutional investors do not want to be more than 10% of a VC fund. So, the VC usually needs at least 10 major investors for a fund. Some of the large funds have over 50 investors! Unlike an entrepreneur, who only needs one or two major investors in a financing, a VC fund needs a lot more.
Once (and if) a critical mass of interested investors develops, the VC then needs to negotiate the new fund’s legal documents and terms. This can be complex, as the VC is negotiating with what may be dozens of investors at the same time. It is common for the VC’s legal bill at this point to run $500,000 or more!
So, you get the idea. They’re busy. You have a great business plan. How do you get a VC’s attention?
The most important thing for an entrepreneur to know is this: a VC is in the business of managing capital, but more important, his time.
There are three major implications from this point of view.
First, it is imperative to get a warm intro to the VC. The odds of a cold call or a blind email resulting in a meeting are extremely low. Simply put, every entrepreneur who contacts the VC has a great idea, is in a big market and is an honest and hard-working person. Imagine if every day you had to watch TV commercials for a living. Quickly, some of the ads will start to sound the same. Similarly, a VC almost becomes immune to sales pitches.
So, this information overload forces VCs to use “proxy screens”. They hope to leverage other people’s assessments at the top of the funnel to triage the flow.
Second, be very efficient with your approach. When introduced to a VC via email, many entrepreneurs will “seize the moment” and email a very long presentation or very long write-up on their company. Some even submit a well-written and very long business plan. Don’t do this! In the email, your goal is not to sell stock in your company. It is to get a meeting.
Third, the VC’s Executive Assistant can make or break your meeting. The EA is the VC’s chief of staff. He/she will schedule the day, arrange for logistics, and most important to the entrepreneur, will prioritize what the VC does.
You want to be incredibly polite and efficient with the EA. You want to be on that person’s good side. If an entrepreneur isn’t organized, polite and respectful to a member of the VC’s team, it’s unlikely he/she will be that way with future employees and customers. In fact, I go out of my way to know what my EA-colleague thinks of a prospective entrepreneur.
EAs cover the logistics for multiple VCs, and so, you can imagine how many balls they juggle in a single day. Phones are ringing off the hook, the details of trips and meetings need to be arranged, and there’s usually controlled chaos every day.
So, given this reality, here are the three pieces of advice I’d like to offer.
Advice #1: find someone with street cred. Since you don’t know the VC, you need an intro. Ideally, that person has some “street cred” and will encourage the VC to meet with you.
I think first on the list is the founder with whom the VC has previously built a successful company. There’s a lot of built-in trust in that relationship. Also, nothing brings up warm feelings like the memory of cash hitting the bank! This person is your Yoda. He/she will show you “the way” to the VC.
Next up is a founder in a current portfolio company that is doing well; the company isn’t liquid yet, but things are rocking. Further down the list are angels, attorneys, recruiters and personal contacts. The hit rate from these sources, though, is mixed.
One nuance to consider is this. Entrepreneur X wants to introduce you to a VC with whom he has never worked. Should you do this? I think it’s a mixed bag if other VCs previously have backed that entrepreneur. That’s because the VC you’re targeting knows that he is on the “B list” of prospects. You’ve probably met those other VCs already, and they’ve already passed on your idea. No one wants to be second fiddle.
Advice #2: a short email that shows you mean business. I think the email should include: a clear description of your business idea; cool and relevant parts of your background; any evidence of traction (more on this below); asking for a 30 minute meeting; and a request to be connected with that VC’s EA to coordinate logistics.
Now, you may be at a stage where you don’t have product, but you can still show “traction” by sharing some market research findings you’ve done or list the prominent experts who have agreed to advise you. You can articulate the pain point you’re solving with a dramatic example. Show something that indicates some form of validation. The best sales pitches, like the best writing, don’t just “tell”—they “show”.
Last, I know that a request for 30 minutes feels short. But, wow, you will impress the VC if you only ask for that. Everyone wants an hour, and you’ll differentiate yourself more if you ask for less. If a VC is interested, you’ll find that the meeting will go for longer.
Advice #3: assume everything you say to the EA gets back to the VC. I don’t have any advice here other than to make your interactions with the EA as painless as possible, and perhaps, write a thank you email to the EA at some point. It’s probably all the stuff our parents taught us, but seems to get lost in the shuffle of busy days.
So, that’s it for now.
In our next post, we’ll cover “how to handle the 1st VC meeting.”