How Startup Founders Can Connect With VCs
“How can I connect with investors?” is one of the most common questions I hear from early-stage entrepreneurs. “Connect” is a good word to use. If you’re looking for funding, you don’t just want to “meet” investors, shake their hands and give them your quick pitch. You want to “connect” with them, to really make a deeper connection.
So how do you do this? With our client roster of successfully funded startups and my close relationships with many in the investor community in Silicon Valley, I think I’ve figured out 6 keys for making these kinds of real connections:
1. No cold contact. This is the first rule. Avoid cold contacts. Maybe it could work for someone, but I don’t personally know of any examples in which a young company was able to whip up investor interest through a cold email. To new entrepreneurs, this can seem like one of those vicious cycles: “I don’t have any connections to VCs so therefore I can’t make any connections.”
There is a way out of this cycle. The answer is simple…but admittedly not easy: work your network hard. Do whatever you can to find a contact — even if it’s many times removed. The closer you can get to the source, the warmer your touch. Pore through your social media contacts. Tell everyone you know what you’re doing and what you’re looking for. Have your pitch ready for the most unexpected opportunities.
And, if and when you do get a warm introduction, don’t waste these opportunities. Jump on your chances, show your gratitude, and make sure that you make the same effort to return the favor and help others in your network.
2. Find your investor hit list. All investors are not created equal, so why would you reach out to any and all investors? First think about what stage your company is in. You want to target early-stage investors—those VCs that focus on seed, startup and first stage financing. Beyond round, you also want to identify those VC firms that specialize in your area, with the caveat that you don’t want any investors who have recently invested in companies who are competitors in your space. Once you have your list, talk to other entrepreneurs to get their impressions and feedback. Your fellow entrepreneurs are a great resource for inside knowledge that you can’t find anywhere else.
3. Focus on investor value-add. When you’re looking for money, it’s easy to forget the other things that an investor can bring to the table. Ultimately, however, it’s these value-adds that are of greatest importance. All investors have money, but what else do they have to offer besides money? When narrowing down your targeted list of investors, I recommend that entrepreneurs focus on what I call the RACE: Relationships, Active involvement, Commitment, and Expertise. These are the things that will have the most positive impact on your company.
4. Target connectors. This is sort of a repeat of my last tip, but such an important one that it bears calling out on its own. When you’re creating your list of potential investors, you want to do so with an eye to who is going to best help you with introductions and navigating the waters of starting your own company. Just as you need connectors to get you an in with investors, so too you will you need connectors to take the next steps once you’ve gotten your first funding round. If you can find an investor with a wide network and a wealth of experience, you’ll be ahead in the game.
5. Do your research. This point cannot be overstated. Do not make the mistake of contacting investors without first doing your homework. If you do, this is pure hubris — and a waste of any warm introductions you’ve been gifted with. Read websites, follow investors on Twitter, and mine LinkedIn and CrunchBase. You should also check out TheFunded, but beware of the bias that can be built in to these reviews.
6. Consider incubators. Incubators aren’t for everyone; if you’re an experienced serial entrepreneur, for example, this is not going to be your path. But for new entrepreneurs, a good incubator program can be a great option. The top programs can be especially hard to get into, but it’s worth the effort for the experience and advice you will acquire.
7. Calculate your milestones. I’ve written about this in greater depth in a previous article (5 Steps to Calculating Your Startup Costs), but suffice to say that investors want to know that their investment will be well spent and not frittered away on kegerators and the like. If you want to connect with VCs, you need to know how much funding you will need. You do this by identifying the major (and distinct) milestones for your company and determining what resources will be necessary to achieve these milestones (operational expenses, HR, product development, and more). This is your funding goal — the amount that your company needs right now.
8. Build traction. At the end of the day, remember that your business is not fundraising; your business is to build your business. Yes, you need money to fund your growth, but don’t get so focused on raising funds that you lose sight of your real goals. Don’t neglect the actual work of building a business: perfecting your offerings, growing your company base, and generating revenue.
Investors are busy people who are bombarded by pitches on a daily basis…we get it! But this doesn’t mean that investors are too busy for you—they are in the business of finding great companies and making money. If you have a great company, you’re building traction, and you know where you’re going and how you’re going to get there—you will find investors who realize your potential and are interested in funding you.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.