By: Brieanne Traube
It’s been a year since Early Growth Financial Services in partnership with Silicon Valley Bank, TriNet, Pillsbury Winthrop Shaw Pittman LLP and Founders Network started our monthly Meet the VC lunch series in San Francisco. Over the course of the last year, we’ve had some interesting and dynamic conversations with early stage venture capital investors, like Aligned Partners, Salesforce Ventures and Vertex Ventures along with more strategic firms like In-Q-Tel, Samsung Next and BASF VC.
We’ve heard a lot of solid advice for founders, much of which is repeated by different folks at different firms, as well as a list of things not to do. Below is a short compilation of some key takeaways from those conversations surrounding best practices for meeting investors, raising money and staying in their good graces.
Do your research – There are thousands of VC firms across the country all investing in different verticals and at different stages. It’s important to spend time researching the firms that are focused in your vertical and also important to know details around how they invest. For example, do they like to lead rounds or do they also co-invest? Are they only focused on seed investing or will they have the potential to follow on in a later round? Choose the firms that will be right for you and your company. It is also super useful to know the key partners at those firms. If your company is in the biotech space, find out who the biotech expert is at each firm. That person will probably be the best one to help champion your cause to the rest of the partners.
Avoid mass email blasts – Don’t spam investors with cold email blasts containing all the information you think they want to know. First, if the email is too long, it most likely will not be read. Time is money and investors will not want to spend precious time reading an email from a stranger. Spend some time to appeal to each person you email and make the approach warm and personal. Also, include your elevator pitch and an executive summary. Save the pitch deck for the actual pitch meeting.
Warm introductions are best – Almost all of the investors that we talked with said that the vast majority (like 90%) of their deal flow comes from warm introductions from their network, including other VCs, other founders they’ve funded and service providers. This is absolutely the best way to make sure that your warm, tailored and well-written email gets some attention. Use your network to see who can help connect you to the people you want to know. Do your research on LinkedIn and make sure you politely ask for those intros with another warm, well-written email.
Understand your milestones – Be clear on what important milestones you need to hit with this current round and then do the math to determine how much you really need to raise. Do you need to build your MVP, launch your product or secure your first ten customers? What costs are involved with achieving that goal? Be sure to include items like office space, legal costs, software subscriptions and salaries or contractor payments. Consider that it may take you a few months longer than you hope to hit these goals. When you have the costs totaled, make sure to add an additional 20-25% of leeway just in case it takes even longer than you think. This should give you a good idea of how much money you should be looking to raise. Not getting to your milestones before you run out of cash puts you in a bad position and raising too much means you could be giving away valuable equity when you don’t need to.
Build a strong and diverse founding team – It’s common to see one or two technical founders building a great product but most investors recognize that it takes more than technical skills to create a successful company. Understanding the strengths and weaknesses of the founding team and then filling in the gaps early with strong operational and sales experts can go a long way from turning a great product into an incredible company. During diligence, investors are looking to see that the early team is well rounded and positioned for success. If you know you need to hire other key employees but don’t have the finances just yet, make sure to let your potential investors know your future hiring plans.
Keeping the good feelings alive
Share updates – Not all firms have required reporting or updates following an investment but we’ve heard it’s absolutely crucial to start this good habit from the beginning. Investors love founders who provide quarterly (or even monthly) brief updates. This builds a sense of trust and saves the investor’s time in wondering how things are going, even if things aren’t looking sunny. Most investors are happy to help provide support in any way possible, from connecting to you to potential clients, helping you secure a reputable law firm and even introducing you to your next investors! Remember, your investor wants you to succeed just as much as you do. Additionally, you can keep investors posted on the progress of the company as things evolve so when you’re ready to start fundraising again, they can also be ready to invest or connect you with other investors who can.
Don’t wait until you’re out of cash to start fundraising – This may seem like a no-brainer but we’ve heard time and time again that investors appreciate when founders are proactive around their fundraising plans and smart about money management. If it seems like you won’t be able to hit your milestones and aren’t sure when to start raising again – absolutely do not wait until the last possible minute. This puts you as a founder in a tricky situation as you lose some leverage in terms of your bargaining power and you also send the negative message that you weren’t able to effectively manage your money. If you’re not good with dollars and cents and basic accounting, find someone who is who can remind you where you stand in terms of cash flow and expenses.
These are just some of the very valuable highlights that our guests have shared with us during our monthly Meet the VC lunches. Venture capital firms come in all shapes and sizes but these are just some of the key pieces of advice that seem to resonate through each firm.
For an invite to our next lunch, please contact us.
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