Daniel Blomquist from Creandum venture capital firm wrote lately how entrepreneurs should focus more on which VC to approach than how to approach. He argues that you can make more out of your time if you try to find out and select the most prominent VCs for your firm beforehand. As Ville Vesterinen and Daniel mention in successive post’s comments, it is a sales job. But a bit of clarifying could be used to point out the similarities and try enlighten the whole process further. The fund raising process seems to be somewhat comparable to business-to-business selling process.
First of all, you need to find out a compelling reason why they should invest in your firm right now, from their point of view. If you cannot find an honest reason, move on. As Daniel implies, it is important that you qualify the potential targets in the beginning. Before contacting, do your homework and research the background to be sure of the fit. And this means both the firm AND the person you are dealing with.
Daniel advices entrepreneurs to start with checking if the portfolio, focus, individuals, and fund characteristics of the VC match your business. The purpose is to figure out whether there is a potential fit between the firm and the VC. Ignore this, and you might end up chasing a ghost, as this The VC comic strip satirizes. Similarly, in selling, you do not go knocking on all doors, rather save your time and try to focus on the most potential firms, which might become your customers. It will be beneficial to develop a pipeline of prospects, and work them through, as you cannot know for sure which ones will buy (invest).
In reaching out to new contacts, referrals are always the best option. So use your network (and any web 2.0 tools) to your advantage and find a connecting path. However, as referring only scales so far, you can and should also look for generating some PR and marketing visibility also, like Daniel also argues. Get promoted in electronic and print publications, but while “all PR is good…” think which are the most important media to reach your target prospect VC.
When getting hold of an individual, you will need to check that she is the correct person to operate with. As Daniel explains, with a VC you might want to check if that person can understand your product and market, and personal and professional fit. You will need to find out whether the person can actually make things happen or not. If it seems unlikely, try to get access to another person or stop wasting your time.
When you know you are dealing with a valid contact, it is time to establish the foothold. Before contacting, think WHO exactly you are contacting – what is important to this particular individual (based on her role), and tailor your message accordingly. Be sure to have a clear value statement to get the interest of the other person in the first 15 seconds. As known, many VCs are notoriously busy, nothing different compared to business executives.
If the person is not interested in, for example, the detailed technical comparison of your widget, do not give it. There is plenty of information available for omission already. Also, the initial meeting(s) you have is meant to trigger interest and find out about the potential – not to throw in 30-slide pitch. After the initial contact, it is important to follow-up, to keep up the mindshare and clear out possible concerns (objections), as Fred Destin of Atlas Ventures well describes (video).
Typically, decisions are done by multiple persons, not all to which you might even get direct access. Therefore you will need to make sure your contact point is confidently able to sell your firm to her colleagues. Make sure there are max four to five clear key points that you put through about why your firm/product is a great one to get involved with. You also want to constantly iterate the pitch (i.e., value proposition): take notes and learn from feedback, then tweak your approach for the next one. And, as Daniel also mentions, it is better not to start with the most promising VC (customer) first, practice initially with some less important ones before going for the shot.
In the process, you might also have to do a partner presentation in the case of VCs (compare a product demo). This is best left as the one of the last steps if possible, when you have enough knowledge of the main interests of the other side, and can target the presentation accordingly. Otherwise you may go totally astray, introducing “wrong” topics and risking the process.
Photo by cpalmieri.