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.