Sunday, July 01, 2012

Getting your foot in a VC's door

This post first appeared in the Financial Times on Saturday 2nd June and was written specifically for the FT. 

A lot of start-ups ask me how to get a meeting with a venture capitalist. The first question I would ask them is why they would want a meeting with a VC firm.
The obvious answer is to raise capital for their venture. However, the more important question might be whether a VC is the best, most appropriate partner and source of funds at this stage – or at all.
Assuming their analysis of this point results in the conviction that venture capital is the way for them to go and they have figured out approximately how much they wish to raise (yet another subject) then here is how I suggest they proceed.

Firstly, take a highly targeted approach. A scatter gun will not only not yield the desired meeting but if by chance it does, then it is very unlikely to result on an investment from a suitable partner. What you want is a well aimed rifleshot.

Secondly, review the landscape of funding available. VC firms come in many different shapes and sizes. However, they can broadly be categorised along three dimensions: size of typical investment, geographical focus and sector or theme within sector.

Having narrowed the candidate VC firms down by these rough parameters, look very carefully at their most recent investments. How many have they made? What types of companies did they invest in? If possible estimate the size of their investment.
How many partners are there in the firm? Do they tend to specialise?
Next, read what the firm says about such things as their investment philosophy, approach and sector focus, and see how closely this matches with their most recent investment.
Remember that not all VC firms invest at early stage or do seed investment. The majority of what are called VC firms should probably be better described as private equity investors because they prefer providing growth capital to established companies.

Once you have identified the three or four candidate VC firms, you now really need to dig in to the data and start your networking research. Note that no approach should yet be made. An unsolicited approach will invariably fail. It is not rudeness for even the most well crafted email, letter or other communication to be ignored. 
If my inbox is anything to go by, it is simply impossible to reply to all – many look like they’ve been sent to multiple investors and being unqualified in any way have to be filtered out. A polite, but canned response is of no value to the recipient.

The best way to approach a VC firm is to identify the partner, principle or associate most likely to be a match to your requirements. Find out all you can about this person. Read their blog, follow their tweets, check out their LinkedIn profile and find anyone you know who may know them, been funded by them, know someone who knows them. Try also to get hold of another  founder who has been funded by them.

The next step is the key that unlocks the door. Get an introduction from a trusted third party. Someone who has recent and better still frequent contact with your target and whose judgement they are likely to respect.

If yours is a technology startup, there is an enormous amount of data available today and resources like Google, LinkedIn, Techcrunch (Crunchbase),  Seedcamp, Angelist, to name but a few, are invaluable.
All of this desk research and networking is time consuming but will save an awful lot of wasted hours cold calling, mailing and meeting one potential investor after another.
If all this sounds difficult or impossible, remember it is easy compared with building a great business, which is what you want to do, is it not?
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