A founder of an early stage startup wrote to me recently. He had reached out to more than 60 VCs through email, and…received not one response.
This was not his only tactic.
He had also asked friends to reach out on his behalf. Without fail, each obtained a paltry “no interest” in response. In his email to me, he asked for more contacts that might be interested. I admit that a quote from Einstein came to mind: "Insanity is doing the same thing over and over and expecting a different result." But this fellow was very bright and highly motivated. He had put together a compelling plan. His venture deserved a chance.
What could possibly be wrong?
When founders seek investment, they often fail to recognize a simple and crucial fact: their modus operandi when seeking investment serves as a compelling example of how they will run their company. Seeking investment is a project like any other. But for some reason, many entrepreneurs fail miserably in this project. For that reason alone, they are often turned away.
Most entrepreneurs fail to put themselves in the shoes of the very VCs they are pitching. As such, they seldom realize how precious time is for VCs given the sheer volume of opportunities they must sort through.
Let’s assume the VCs have a $200M fund and five partners. If they have a goal of returning $2B to their LPs for a 10x return, each partner is trying to invest $40M and return $400M. To do this each VC will normally have requests for funding from perhaps forty ventures a week, meet with about ten ventures a week, and invest in maybe one or two a year. Put simply, most VCs will not be willing to meet with you, to spend their precious time, unless you provide them with a really good reason.
As a VC, I enjoy analyzing how founders reach out to me. This “pre-screen” serves as an easy and effective way to discard opportunities from my overflowing inbox.
Below are the Five Wrong Ways to Reach Out to VCs:
- Cold call the VCs
- Reach out to the wrong VCs
- Fail to research who the VC is, what they have invested in, what their interests are, and what the firm’s portfolio is
- Obtain an introduction from someone who knows the VC, but who does not indicate strong support for the company
- Reach out without giving a brief but compelling overview of the venture alongside with why partnership with this VC is right for you
Why, you ask?
Well, let’s walk a mile in the VCs’ shoes to see:
1. When you cold call VCs…
You are indirectly indicating that you lack a connection to a warm introduction. Nor are you able to reach out to someone who is a first, second, or even third-level connection and obtain a referral. It’s incredibly unlikely that you don’t have at least one or two possible connections. So, it often appears that you just weren’t willing to put in the effort. No matter what VCs write on their websites, this is likely fatal to your opportunity.
2. When you reach out to the wrong VCs…
You are proving that you did not do your homework. Like most other businesses, VCs specialize in the areas in which they have expertise. Suppose you have a venture that is B2C, but you reach out to a VC that solely invests within B2B. Or suppose you have a healthcare venture, and you reach out to a VC that focuses on internet services. If the VC is considerate, they will make an introduction to the right VC. But the fact that you apparently didn’t understand that you were reaching out to the wrong person serves as a strong negative.
3. When you fail to research the VC’s background, investments, and interests…
You are indicating that you are only thinking of them as a source of money and not a relationship as your partner. When VCs invest in your company it is a strong relationship, like a marriage. Except there’s no chance for divorce.
A VC is not just an investor of funds. They will almost always be a board member or a partner in the growth of your company. They expect to help you in multiple ways: recruiting hires, building relationships with customers and partners, raising your next round of funding, strategizing, and more. The only way they can be effective is to have strong interest and deep knowledge/experience in these areas.
If your venture matches their interest, and you show your knowledge of the investor’s passions/skill set, it is a strong positive. In addition, VCs of course have an ego, and your knowledge of their strengths shows you’ve done your homework.
One caveat is that if the VC firm’s portfolio has a company that can reasonably be considered a competitor, you should not reach out to them. If you do, you might actually be invited to have a meeting, but the primary purpose of the meeting is likely to better understand your company or the market or to help the competitor.
4. When you obtain an introduction from someone who knows the VC, but does not indicate strong support for the company…
I’m often asked by entrepreneurs if I might make an introduction to a VC. But the difficulty lies in the nature of the introduction I am asked to make. If it is simply an introduction, then sure, it’s of value and much better than no introduction at all (as we mention in our first point). I might also make some positive comments about the individual. But I will be sure to let the VC know that I don’t have any depth of knowledge of the venture.
However, if they want a positive recommendation for their venture in addition to their competence/experience, most of the time they don’t realize how difficult it is to help them. To make a positive recommendation I would have to understand the team, their value proposition, their competitors, and much more.
Most of all, I’d have to believe in the company. I’m basically saying to the VC, this is worth your time. And if they trust my judgment, they’d likely be willing to follow up. If it worked out that it was worth their time, my credibility would be good. If it wasn’t worth their time, I might have greater difficulty in the future for them to be willing to meet with anyone I recommended.
5. When you reach out without giving a brief but compelling overview of the venture, and why they are the right VC for you…
When you or your friend reach out to a VC, they are likely to at least read your email. The email request itself should be short! But your email should have a brief separate section for an elevator pitch. This will hopefully entice them to read your deck. The elevator pitch should summarize your venture concept, your team, and your reason for reaching out to them.
There is an art to creating an elevator pitch; working on it can take weeks of effort to write just a few paragraphs. Put simply, it serves as a compelling summary statement of your value proposition. More on this in a forthcoming blog post!
Have you ever experienced this? Do you disagree? Have a question?
Tell us in the comments, or reply on Linkedin or Twitter!
Lastly, do you have a breakthrough venture you’d like to pitch to Platform Venture Studio? Learn more about us here https://os.platformstud.io/faq.