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How Should I Approach a VC I Don’t Know?

Q:  Everyone tells me the way to approach a venture capitalist I don’t know is through a friendly introduction from someone who already knows that VC. But what happens if I don’t have the connections to get that introduction? Am I screwed?

A:  (Chris) Every entrepreneur who has raised venture capital has heard it a thousand times—the best way to approach a venture capitalist is via a warm introduction. Venture capitalists invest in people as much as they do in technology or business ideas, and having some connection (even if it’s indirect) is immensely helpful to the VC in determining if that entrepreneur is someone he wants to invest in. The logic also continues that VCs are generally bombarded by requests for meetings, so a warm introduction helps an entrepreneur’s request float to the top of the list.

Unfortunately, as you’ve pointed out, sometime you don’t have the luxury of relying only on warm introductions. That doesn’t mean you can’t or won’t be successful in approaching a VC on your own, but I think there are ways to improve your chance of success.

Here’s my advice to entrepreneurs on what to do and what not to do when approaching a venture capitalist cold.

Do… Research the VC, his/her firm and their investments. If you’re asking a venture capitalist to take the time to read your business plan or take have a call with you, then you owe it to him to take the time to understand who he is and what kinds of investments his firm makes. It’s a waste of everyone’s time if you cold call a VC for funding for, say, an artificial heart valve startup when that venture firm’s web site makes it clear they only invest in software companies. By researching investments that the venture firm has made that are relevant to your opportunity (and by mentioning that research when appropriate), you show the VC that you’re serious, thoughtful and have done your homework. Successful fundraising usually isn’t a game of large numbers (i.e. the number of VCs you send your executive summary to); it’s about being smart about who you reach out to, understanding and articulating why you’re reaching out to them in particular, and having the appropriate follow through.

Do… Reach out to the VC in a way that makes it easy for a VC to respond to your approach. Out of the three primary options—USPS mail, phone and email—I think email is by far the best way to make the initial approach. VCs are notorious for their hectic travel schedules, packed calendars and odd working hours. The cold email approach saves you time and makes it easy for the VC to quickly assess whether your opportunity is one that merits pursuing. Regardless of how you decide to approach VCs, make sure they provide all of your contact info (including email and phone number) so they can re-connect with you in whatever way is best for them. Believe it or not, I have actually received business plans (via USPS) where the only contact information provided was a postal address. I can tell you firsthand that the more options you give a VC for reaching back to you, the more likely you are to actually hear back from him.

Do… Be specific in your approach about why you’re approaching that VC and what you’d like to accomplish. I think it sets the interaction off on the wrong foot when I get an email or a phone call from someone and I have to prompt them during the dialogue to get to the heart of why they reached out to me. Conversely, I really respect it when someone cuts straight to the chase and tells me what they’re looking for and why they think I’m the right person for them to reach out to. It not only tells me the entrepreneur knows what he wants and is confident enough to just ask for it, but it also gives me a sense of where that entrepreneur is coming from, whether he’s done his homework and whether his interpretation of the situation matches my interpretation.

Do… Provide the VC with enough information during the initial approach to allow him to qualify that you and your opportunity are interesting. While “dark and mysterious” may work in the dating world, being coy or secretive in the initial approach to a VC usually backfires on the entrepreneur. I’ve been on the receiving end of emails and voicemails that say nothing more than “I have a really exciting idea for a company and would like to arrange a meeting with you at your office next Tuesday.” While I think most VCs like to be accessible and will generally try to return all credible messages they receive, in most cases an attempt on the entrepreneur’s part to create a sense of intrigue will backfire and cost him or her credibility. If you do leave a message or send an email, give the VC enough information for him to determine whether it’s of interest to him.

Do… Recognize that successful fundraising is usually a series of small steps rather than one large step. Most entrepreneurs wouldn’t expect a venture capitalist to read a business plan and immediately write a check to the entrepreneur. Similarly, it’s unlikely to expect that you can pick up the phone, cold call a VC and immediately have that VC spend a couple hours on the phone going through your entire presentation. Nor should you expect that you can cold email a VC and get him to have lunch with you without his having pre-qualified that your opportunity is interesting. Your primary goal when you first cold approach a VC is simply to determine whether he has any interest in your opportunity. That’s your only ask during the initial approach: “Does this sound like something that might be of interest to you or one of your partners?” And all you have to do is provide just enough information for the VC to be able to respond. Assuming there’s an expression of interest, you can proceed with the dance called fundraising.

Do… Follow through when you make your outreach and be gently persistent. I’m amazed at the number of letters and emails I get in which the entrepreneur concludes by saying “I’ll call you next week to follow up and see if you have any questions” and where I never actually get that call. If I get a credible email or letter, I generally will close the loop regardless of whether the entrepreneur calls me, but if the initial contact promises follow through, then not doing so costs the entrepreneur credibility. Likewise, I don’t think most VCs consciously try to test entrepreneurs’ persistence, but our travel schedules, busy calendars, and existing portfolio demands sometimes create a backlog. Gentle persistence in following up can be what keeps you at the top of their minds.

Don’t… Try to make idle chitchat as a prelude to your “ask”. We’ve all had those telesales calls where an anonymous sales person tries to engage you in pleasantries about the weather, how your weekend was, or whether you think <insert sports team here> can make it all the way to the Super Bowl, etc. I don’t know of many people that enjoy it. If you don’t already have some sort of a personal connection to the VC you’re calling, the first cold call isn’t the time or place to try to force that connection. If you assume that you will only get a finite amount of time from a VC in your initial approach (it’s a safe assumption), spend that time wisely on making your case why your opportunity is a great fit for that VC, not on trying to make witty banter.

Don’t… Name drop, try to create a false sense of urgency, or raise a lot of hype unless you can back it up. Venture capitalists exchange emails, have phone calls, and meet with lots and lots of people. Most can smell wh
en you’re trying to bull-shit them, and the only thing this does is make them more wary.

August 15th, 2008 by     Categories: Fundraising, Venture Capital    
  • Proven Business Deve

    Your guidance on this topic is very insightful. I am assisting a group of entrepreneurs with a very technical background and their business acumen is low. However, to their credit, they are aware they are not strong on this and need the skills and people that will represent this well. I have been advising them on the “business” aspect of the process of securing funding which entails the points you have made as well as a few more.
    As many new ventures start with brilliant technical people and their ideas, one would think that the need for balance by representing the “business” side in securing funding would benefit these groups tremendously.

    With the startup companies that do approach you and investors in general, do the groups that are balanced with “business” acumen go through further to funding?

    • http://www.feld.com Brad Feld

      Yes

  • Bruce

    Seems like the guidelines suggested here aren't specific to just VCs and investments, but pretty much any business relationship, no?

    • http://www.feld.com Brad Feld

      Theoretically.

  • James Mitchell

    I just don't understand the “I cannot find a way to get introduced to a VC comment.”

    Raising money is hard, whether it's through an IPO, VC, angels, or whatever. You read stories of some entrepreneur who meets with a VC, has the meeting the next day, and walks aways with a $8 million commitment. You don't realize that this happens because the entrepreneur has a fantastic track record, he already knows the VC, maybe the VC already made a 10x return with him on the previous deal, and the idea is one that is the VC's list of trends the VC likes to invest in.

    Make a list of all the VCs you might be interested in. It would be an unusual VC who did not have a web site with a list of portfolio companies.

    Then show the list to everyone you know. You will need a law firm. Go talk with 10 law firms that specialize in helping startups. If the partner you are meeting with does not at least know some of them, you probably have the wrong law firm.

    Meet a bunch of entrepreneurs. Ask them who they have dealt with and who they like and do not like.

    Same is true of commercial bankers, accountants, business school entrepreneurship professors, etc. If you have a business degree, your alumni association is probably a good way to network.

    After all this is done, you should have a couple of contacts for each VC. If you don't, either the VC has not been around the block or your contact base is not very good.

    Every startup which is seeking venture capital needs to have someone on the team who knows how to do this, how to write a business plan, how to hone your pitch, how to manage the followup process. It's basic contact management. If you cannot do this, can you really run a business? Identifying and closing customers is just as hard as raising venture capital and I think it is a similar process. It's important to realize that this will probably be a time consuming process. One person has to be in charge of this process and be responsible for making it happen.

    One additional point — Read Brad Feld's Term Sheet series, and you will have an idea of why VCs ask for what they are asking and what is negotiable and what is not.

    James Mitchell
    jmitchell@kensingtonllc.com

    • Dave

      I would add to this that most VCs have a rather large circle of business colleagues who have worked with them in some way in the past – founders/execs of portfolio companies, as well as some of the categories James mentions like attorneys. If you can find a connection to one of those people – one degree of separation from the VC – sometimes they are easier to cold-connect and give a quick pitch to, because (unlike most VCs) they may have an interest in general networking. If they find your idea intriguing, they can help with a “warm” introduction. It's not as good as if they already knew you, but much better than a cold-connect directly to the VC.

  • Andrew Hillman

    Over the years I have read about thousands of startups reaching VC's through contacts, but I have only heard of one founder who submitted his plan or ex summary through the VC's website and closed a round through them without a warm introduction. Strangely enough the VC was Sequoia Capital. I'd say this is extremely rare. When I heard this years ago, I went to Sequoia's site and it actually said something like….. an intro is a great way to pitch us, but not necessary since we read and respond to every single plan submitted. We will give you an answer quickly……

  • Bob Skeptic

    Any thoughts on what I should wear? Are there any Etiquette I should follow when meeting VC? You know like the etiquette's for meeting the Queen…

    • Dave

      You should research it – look at the photos on the firm's website and see what *they're* wearing. Ask around and find out the firm's reputation for formality/informality. Absent any of that, there are regional differences:

      Si Valley: Business casual
      NY/Boston/DC: Suit – a very good suit.
      Atlanta/Southeast: Generally a suit, but some firms may be more business casual
      Colorado: Business casual; in Boulder, very casual but remove your bike/rock helmet before entering building
      LA: I don't know, but my guess would be that whatever passes for self-consciously casual that week is pretty important

    • http://www.feld.com Brad Feld

      It varies dramatically.

  • Kameir

    Do you think it is generally a good idea to send a one page 'investment opportunity' page with expected exit scenarios (with the first pitch)?

    • http://www.feld.com Brad Feld

      A short executive summary (one page) is helpful, but I

  • David

    How about approaching via the likes of LinkedIn or Facebook?

    • http://www.jasonmendelson.com Jason Mendelson

      Whatever works. I certainly don't mind it.

      Jason Mendelson
      ————————
      Foundry Group
      - Sent from my iPhone
      Please forgive typos

    • http://www.feld.com Brad Feld

      That

  • http://www.worthpoint.com antiques

    this was a really good post. certainly made for an interesting read early this morning.

    • http://www.squidoo.com/ride-on-lawn-mower Mike

      Yes I agree, definitely interesting post, some great techniques and thoughts.

  • Amenasce

    Did any of this change since the start of the depression ?

    • http://www.feld.com Brad Feld

      Nope.

      • AndrewMenasce

        Thanks. One more question…when cold-emailing a VC, should i send the executive summary at first or just introduce the company/business model briefly and then wait for contact to be made to send the summary ?

        • http://www.feld.com Brad Feld

          Introduce things briefly with at most two paragraphs.

          • AndrewMenasce

            Thank you.

  • Sean

    Interesting, so it is comes to a cat and mouse game, theVC

  • Ravi P

    do i have to patent my idea before I disclose it to VC? how will this work?

    • http://www.jasonmendelson.com Jason Mendelson

      Nope.