This year, I’ve had the opportunity to work with two early stage tech venture capital funds. As an entrepreneur, getting to sit on the other side of the table and really learn to think about how VCs look at potential investments has been an invaluable experience. One of the biggest things I’ve learned is that founders are so optimistic and blindsided about their startups, that often they forget to think about the fact that VCs approach analyzing startups much differently than entrepreneurs.
In fact- entrepreneurs make a lot of mistakes when pitching VCs. This can be due to inexperience, arrogance, or optimism but when you’ve been pitched hundreds of times over and over, you begin to see entrepreneurs make the same mistakes which can be dealbreakers.
So as I step out of VC and step back into entrepreneurship, I wanted to share with my fellow founders some things you’re doing that are hurting your chances of raising capital.
1. Be Nice to Everyone- As you walk in to pitch at a VC’s office, you should be nice to everyone around you. Whether it’s a partner’s executive assistant, associate, intern, secretary etc. Entrepreneurs can be cocky, and VCs often rely on the opinions of their team members at all levels to make sure their personal assessment of the entrepreneur is correct. When you come into a room for a meeting, introduce yourself to everyone at the table. Be friendly and inquisitive, and reference everyone around you. Often, associates do a lot of the initial diligence and can sway partners into liking or disliking a deal. So be a good human being.
2. Understand the Deal Mindset – VCs think about startups as “deals” and they want to get in on the good deals. You can use this to your advantage by doing things like highlighting your momentum, showing that the deal is so hot it’s oversubscribed, or namedropping influential angels who participated in the seed, etc. Overall, while you think of your startup as your baby, something you’ve poured your blood, sweat, and tears into, you have to understand that VCs spend all day looking at “deals” and you have one shot to make the deal look attractive.
3. Follow Up Promptly and Often- VCs have a famously short attention span. If you’ve gotten their attention and interest, don’t mess up the deal by taking too long to follow up with your deck or any materials they’ve requested. I’ve made this mistake myself as an entrepreneur because running a startup is hard and takes a lot of attention, but here is another time when you have to understand the VC mindset. If you don’t follow up quickly, they will move on to the next deal.
4. Research the Firm and the Best Partner for your Deal- Deals are generally done on a partner basis, meaning each partner at a firm will pick the deals they like and sell the partnership on investing. If you get a warm intro into a VC firm (which is essential), do research on who at the firm has the experience and background to champion your deal. For example, if you’ve got a fast growing consumer mobile app, make sure you’re not pitching the partner who specializes in enterprise startups. This can be done delicately by building the relationship with the initial contact, researching the firm, and potentially asking whether the appropriate partner can be in the room when you pitch. A little research goes a long way.
5. Don’t Try to Outsmart the VC– VCs are really, really smart. They see a lot of different business models, companies, and get firsthand experience building companies by sitting on portfolio company boards. I’ve been in the room when an entrepreneur tried to be sneaky and post metrics that made his look attractive, but were not the industry standard. He got absolutely slammed and lost a lot of credibility by either not understanding his error (which makes him look dumb) or trying to outsmart the VC (which makes him look sneaky). The job of a VC is to find what’s wrong with your business, kind of like a loose thread that will make the sweater unravel. Most of the time- if there is a thread, they will absolutely find it. So if you do have some questionable metrics or problems with your model, be transparent about it. VCs appreciate candor and want to see that founders are coachable and transparent.