Category: Venture Capital

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VCs = Gatekeepers?

vc gatekeepers, gate

Not too long ago, I had the fortune of chatting with a fascinating product mind. During our delightful conversation, she asked me:

Are VCs the gatekeepers of ideas?

…referencing Michael Seibel‘s recent string of tweets:

And I’m in complete accordance. I want to specifically underscore 2 of Michael’s sentences.

… and…

The only ‘exception’ to this ‘rule’ would be if investors themselves were the target market for the product. At the same time, I can see how the venture industry has led her and many others to believe otherwise. So I thought I’d elaborate more through this post.

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A Reminder of “Why I Love You” – Managing Downtime and Dynamics Between Fundraising Meetings

love, founder vc love, vc fundraising meetings

I recently read Mark Suster‘s 2018 blog post about startups on “Remind me why I love you again?”. As an extremely active VC, he specifically detailed why, unfortunately, by meeting 2, 3, and so on with a founder, he may forget the context of reconnecting and why the founder/startup is so amazing. And, simply, he calls it “love decay”.

Mark Suster’s graph on ‘Love Decay’

The longer it has been since a VC/founder’s last meeting, the harder it is to recall the context of the current meeting. Though I may not be as over-saturated with deal flow as Mark is, it is an unfortunate circumstance I come across in meeting 5-10 founders and replying to 100+ emails a week.

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#unfiltered #21 The Recipe for Personal Growth – Thomas Keller’s Equation for Execution, The VC/Startup Parallel, Helping Others, La Recette Pour La Citron Pressé

lantern, personal growth, light

Over the weekend, I was brewing up some mad lemonade. ‘Cause well, that’s the summer thing to do. Since I’m limited in my expeditions outdoors, it’s just watching the sun skim over the horizon, blossoming its rose petals across the evening sky, in my backyard, sipping on homemade lemonade. If you’re curious about my recipe, I’ll include it at the bottom of this post.

When I’m cooking or performing acts of flavor mad science, I enjoy listening to food-related podcasts, like Kappy’s Beyond the Plate, Kappy’s CookTracks or Bon Appétit’s Foodcast. Unfortunately, all are on a temporary hiatus. So, I opted for the next best – YouTube videos. And recently, a curious video popped up in my Recommended feed. A 2010 TED Talk with Thomas Keller.

Thomas Keller. An individual probably best known, among many others, for his achievements with The French Laundry. Needless to say, I was enamored by his talk. But the fireworks in my head didn’t start going off until the 12:46 mark.

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Why Aren’t Investment Theses Hyper-Specific?

pedestrian, vc investment thesis

As a result of my commitment to provide feedback for every founder who wants a second (or third) pair of eyes on their pitch deck, I’ve been jumping on 30-minute to 1-hour calls with folks. Although I’ve had this internal commitment ever since I started in venture, I didn’t vocalize it until earlier this year. And you know, realistically, this is not gonna scale well… at all. But hey, I’ll worry about that bridge when I cross it.

Something I noticed fairly recently, which admittedly may partly be confirmation bias ever since I became cognizant of it, is that there have been a significant number of founders currently fundraising who complain to me about:

  1. Many VCs don’t have their investment thesis online/public.
  2. Of those that are, VCs have “too broad” of a thesis.

So, it got me thinking and asking some colleagues. And I will be the first to admit this is all anecdotal, limited by the scope of my network. But it makes sense. That said, if you think I missed, overlooked, over- or underestimated anything, let me know.

The Exclusionary Biases

By virtue of specificity, you are, by definition, excluding some population out there. For example, in focusing only on potential investments in the Bay, you are excluding everyone else outside or can’t reach the Bay in one way or another. Here’s another. Let’s say you look for founders that are graduates from X, Y, or Z university. You are, in effect, excluding graduates from other schools, but also, those who haven’t graduated or did not have the opportunity to graduate at all.

The seed market example

Here’s one last one. This is more of an implicit specificity around the market. The (pre-) seed market is designed for largely two populations of founders:

  1. Serial entrepreneurs, who’ve had at least one exit;
  2. And, single-digit (or low double) employees of wildly successful ventures.

Why? You, as a founder, are at a stage where you have yet to prove product-market fit. Sometimes, not even traction to back it up. And when you’re unable to play the numbers game (like during the stages at the A and up), VCs are betting on the you and your team. So, to start off, we (and I say that because I’ve been guilty of overemphasizing this before) look into your background.

  • What did your professional career look like before this?
  • Do you have the entrepreneurial bone in your body?
  • How long have you spent in the idea maze?

The delta between a good investor and a great investor

Let’s say an investor were to be approached by two founders with the exact same product, almost identical team, same amount of traction, same years of experience, and let’s, for argument’s sake, have spent the same number of years contemplating the problem, but the only difference is where they came from. One is a first-time founder from [insert corporate America]. The other is the 5th employee of X amazing startup. Many VCs I’ve talked with would and have defaulted on the latter. And the answer is reinforced if the latter is a founder with an exit.

The question wasn’t made to be fair. And, it’s not fair. To the VCs’ credit, their job is to de-risk each of their investments. Or else, it’d be gambling. One way to do so is to check the founder’s professional track record. But the delta here that differentiates the good from the great investor is that great investors pause after given this information and right before they make a conclusion. That pause that gives them time to ask and weigh in on:

What is this founder(s)’ narrative beyond the LinkedIn resume?

Shifting the scope

It’s not about the quantitative, but about the qualitative. It’s not about the batting average, but about the number and distance of the home runs. So instead of the earlier question:

  • How long have you spent in the idea maze?

And instead…

  • What have you learned in your time in the idea maze?

Similarly, from what I’ve gathered from my friends in deep/frontier tech, instead of:

  • How many publications have you published?

And instead…

  • Where are you listed in the authorship of that research? The first? The second? The 20th?
    • For context of those outside of the industry, where one is listed defines how much that person has contributed towards the research.
    • As a slight nuance, there are some publications, where the “most important” individual is listed last. Usually a professor who mentored the researchers, but not always.
  • And, how many times has your research been cited?

Some more context onto specificity

Some other touch points on why (public) investment theses are broad:

  • FOMO. Investors are scared of the ‘whats if’s’. The market opportunity in aggregate is always smaller than the opportunity in the non-aggregate.
  • Hyper-specific theses self-selects founders out who think they’re not a ‘perfect fit’. Very similar to job posts and their respective ‘requirements’.
  • Some keep their thesis broad in the beginning before refining it over time. This is more of a trend with generalist funds.
  • Theses are broad by firm, but more specific by partner. The latter of which isn’t always public, but can generally be tracked by tracking their previous investments, Twitter (or other social media) posts, and what makes them say no. Or simply, by asking them.

The pros of specificity

Up to this point, it may seem like specificity isn’t necessarily a good thing for an investor. At least to put out publicly.

But in many cases, it is. It helps with funneling out noise, which makes it easier to find the signals. It may mean less deal flow, which means less ‘busy’ work. But you get to focus more time on the ones you really care about. And hopefully lead to better capital and resource allocation. The important part is to check your biases when honing the thesis. Also, happens to be the reason why LPs (limited partners – investors who invest in VCs) love multi-GP funds (ideally of different backgrounds). Since there are others who will check your blind side.

Specificity also works in targeting specific populations that may historically be underrepresented or underestimated. Like a fund dedicated to female founders or BIPOC founders or drop-outs or immigrant founders. Broad theses, in this case, often inversely impact the diversity of investments for a fund. When you’re not focusing on anyone, you’re focusing on no one. Then, the default goes back to your track record of investments. And your track record is often self-perpetuating. If you’ve previously backed Stanford grads, you’re most likely going to continue to attract Stanford grads. If you’ve previously backed white male founders, that’ll most likely continue to be the case. In effect, you’re alienating those who don’t fit the founder archetype you’ve previously invested in.

In closing

We are, naturally, seekers of homogeneity. We naturally form cliques in our social and professional circles. And the more we seek it – consciously and subconsciously, the more it perpetuates in our lives. Focus on heterogeneity. I’m always working to consider biases – implicit and explicit – in my life and seeing how I’m self-selecting myself out of many social circles.

Whether you, my friend, are an investor or not. Our inputs define our outputs. Much like the food we put in our body. So, if there’s anything I hope you can take away from this post, I want you to:

  1. Take a step back,
  2. And examine what personal time, effort, social, and capital biases are we using to set the parameters of our investment theses.

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#unfiltered #18 Naivety vs Curiosity – Asking Questions, How to Preface ‘Dumb’ Questions, Tactics from People Smarter than Me, The Questions during Founder-Investor Pitch

asking questions, naivete vs curiosity, how to ask questions

Friday last week, I jumped on a phone call with a founder who reached out to me after checking out my blog. In my deep fascination on how she found and learns from her mentors, she shed some light as to why she feels safe to ask stupid questions. The TL;DR of her answer – implicit trust, blended with mutual respect and admiration. That her mentors know that when she does ask a question, it’s out of curiosity and not willing ignorance – or naivety.

But on a wider scope, our conversation got me thinking and reflecting. How can we build psychological safety around questions that may seem dumb at first glace? And sometimes, even unwittingly, may seem foolish to the person answering. The characteristics of which, include:

  • A question whose answer is easily Google-able;
  • A question that the person answering may have heard too many times (and subsequently, may feel fatigue from answering again);
  • And, a question whose answer may seem like common sense. But common sense, arguably, is subjective. Take, for example, selling losses and holding gains in the stock market may be common sense to practiced public market investors, but may feel counter-intuitive to the average amateur trader.

We’re Human

But, if you’re like me, every so often, I ask a ‘dumb’ question. Or I feel the urge to ask it ’cause either I think the person I’m asking would provide a perspective I can’t find elsewhere or, simply, purely by accident. The latter of which happens, though I try not to, when I’m droning through a conversation. When my mind regresses to “How are you doing?” or the like.

To fix the latter, the simple solution is to be more cognizant and aware during conversations. For the former, I play with contextualization and exaggeration. Now, I should note that this isn’t a foolproof strategy and neither is it guaranteed to not make you look like a fool. You may still seem like one. But hopefully, if you’re still dying to know (and for some reason, you haven’t done your homework), you’re more likely to get an answer.

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Looking at Business Models – Consumer Behaviors and Gross Margins

startup business models, waves, consumer behaviors

While sipping on my morning green tea, I’m inspired by Venture Stories’ recent podcast episode where Erik was interviewing Charles Hudson of Precursor, where they codify Charles’ investment thesis, markets, business models, among many other topics. A brilliant episode, if I say so myself! And it got me thinking.

Some market context

In the past few months, I’ve been chatting with a number of founders who largely seem to gravitate towards the subscription business model. Even pre-COVID, that seemed to be the case. And this notion was and is further perpetuated where a plethora of VCs turned their attention to XaaS (X-as-a-service).

Why? Pre-COVID, the general understanding was that consumers were:

  1. More expensive to acquire,
  2. And, harder to retain,

…which I shared in one of my February posts. I’d even heard some investors say: “Consumer social is dead.” Although I personally didn’t go as far as to illustrate the death of a vertical, I had become relatively more bearish on consumer than I did when I started in venture. Clearly, we were wrong. The question is: how much of this current situation will still hold true post-COVID? And honestly, your guess is as good as mine. But I digress.

Given the presumption that the consumer industry was faltering, many VCs re-positioned their theses to index more on enterprise and SaaS models. Models that had relatively fixed distribution channels and recurring revenue. It became some form of ‘guarantee’ that their investments could make their returns. And as the demand for startups shifted, supply followed.

The Business Models

Though there seemingly has been an overindexing of subscription models in the consumer space, I’m still an optimist for its future. The important part is to follow consumer behavior.

  • What do their consumption patterns look like?
  • What do their purchasing patterns look like?
  • How do customers think about value?

Here is a set of lens in which I think about business model application:

Subscription“One-off”
Continuous consumption patterns
>3-4 times in a month
(Ideally, >3-4 times per week)		Discrete consumption patterns
~1-2 times a year
Extremely episodic in nature
Proactive, expectant behaviorReactive behavior
Examples:
Food
Groceries
Music
Education		Examples:
Moving homes
One-off Conferences
Travel
Car
Note: The examples are generalized. The business models will depend on your target market. For example, travel for the average family may not happen on a recurring basis, but travel for a consultant happen weekly (pre-COVID).

The Extremes of Gross Margins

Of course, I can’t talk about business models without talking about profits. The ultimate goal of any business model is to realize returns – gross margins. Unfortunately, there’s no silver bullet on how you price your product. While you find the optimum price (range) for your product A/B testing with your customers, here’s a little perspective onto the two extremes of the spectrum.

  1. If you have insanely high margins, expect lots of competitors – either now or in the near future. Expect price-based competition, as you may most likely, fight in a race to the bottom. Much like the 1848 California Gold Rush. Competitors are going to rush in to saturate the market and squeeze the margins out of “such a great opportunity”.
  2. If your margins are incredibly low, as Charles said on the podcast, “there better be a pot of gold at the end of the rainbow.” You need extremely high volumes (i.e. GMV, “liquidity” in a marketplace) to compensate for the minimal cut you’re taking each transaction. A fight to monopolize the market. I’m looking for market traits like:
    1. Growing market size.
      • Ideally heavily fragmented market where you can capture convoluted, antiquated, and/or unconcentrated processes in the status quo.
      • Why unconcentrated? Don’t underestimate the power of your incumbents’ brands and product offerings. Like don’t jump in ad tech if you’re just going to fight against the Google and Facebook juggernauts, who own 80% of the ad market.
    2. Insane network effects.
    • For example, payments or food delivery. Food delivery is one where you have to reach critical mass before focusing on cash flow/profitability. I get it. It’s a money-eating business… until network effects kick in. Sarah Tavel wrote a Medium article about this where she explains it more elegantly than I have.

In closing

I’ve seen many founders end up taking their models for granted or sticking to a single generic revenue structure. But the best founders I meet make this a very intentional part of their business. Sometimes, even having different revenue streams for different parts of the business. If that’s the case for you too, Connie’s piece about multimodal models may be worth a read.

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Competitive Awareness as a Founder

sailing, competitor analysis, competitor awareness

For a while, I’ve been publicizing one of my favorite questions for founders.

“What unique insight (that makes money) do you have that either everyone else is overlooking or underestimating?”

I first mentioned it in my thesis. And, which might provide more context, was quickly followed by my related posts on:

For the most part, founders are pretty cognizant of this X-factor. B-schools train their MBAs to seek their “unfair advantange”. And a vast majority of pitch decks I’ve seen include that stereotypical competitor checklist/features chart. Where the pitching startup has collected all the checkmarks and their competitors have some lackluster permutation of the remaining features.

There’s nothing wrong with that slide in theory. Albeit for the most part, I gloss over that one, just due to its redundancy and the biases I usually find on it. But I’ve seen many a deck where, for the sake of filling up that checklist, founders fill the column with ‘unique’ features that don’t correlate to user experience or revenue. For example, features that only 5% of their users have ever used, with an incredibly low frequency of usage. Or on the more extreme end, their company mascot.

To track what features or product offerings are truly valuable to your business, I recommend using this matrix.

And, I go into more depth (no pun intended) here.

Competitive Awareness > Competitive Analysis

I’m going to shed some nuance to my question in the words of Chetan Puttagunta of Benchmark. He once said on an episode of Harry Stebbings’ The Twenty Minute VC:

“The optimal strategy is to assume that everybody that is competing with you has found some unique insight as to why the market is addressable in their unique approach. And to assume that your competitors are all really smart – that they all know what they’re doing… Why did they pick it this way? And really picking it apart and trying to understand that product strategy is really important.”

So, I have something I need to confess. Another ‘secret’ of mine. There’s a follow-up question. After my initial ‘unique insight’ one, if I suspect the founder(s) have fallen in their own bubble. Not saying that they definitively have if I ask it, but to help me clear my own doubts.

“What are your competitors doing right?”

Or differently phrased, if you were put yourself in their shoes, what is something you now understand, that you, as a founder of [insert their own startup], did not understand?

In asking the combination of these two questions, I usually am able to get a better sense of a founder’s self-awareness, domain expertise, and open-mindedness.

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Two Ways Investors Measure Founder Coachability

As much as investors love founders with passion (or obsession) and grit, they also want to invest in founders who have the capacity to grow as individuals as much as their startup grows. And that boils down to how curious and open-minded they are. In other words, how coachable are they? In the past 2 weeks, I’ve had the fortuity to talk to 2 brilliant angel investors – each with their own respective formula for measuring founder coachability.

Formula #1: Assessing Peer Coachability

Last year, I shared a post about the importance of all three levels of mentorship – peer, tactical, and veteran. With the most underappreciated one being peer mentorship. For the sake of this post, let’s call the first angel, Marie. Similarly, Marie finds that peer coachability acts as a useful proxy for founder coachability. And she approaches peer coachability in a very unique way:

What do you and you co-founder(s) fundamentally disagree on?

Following that question, usually 1 of 3 scenarios ensue:

  1. The co-founders can state what they disagree on. And by follow-up question, share how they resolved that disagreement, then how that applies to their framework for resolving future disagreements.
  2. They figure it out on the spot. Better sooner than later.
  3. They say, “Nothing.” And quite possibly, the worst answer they could provide. ‘Cause that means they just don’t understand each other well enough. It’s highly unlikely that given how complex human beings are, that there can be two ambitious individuals who have the exact same outlook on life. Even twins have variations in their perspectives.

Knowing what co-founders disagree on assesses not only how well founders know each other, but also, how they’ve learned from each point of friction. Whether intentionally or not, they become each other’s coaches and push each other forward.

Formula #2: Assessing VC-Founder Coachability

Jerry, on the other hand, tests the waters by offering a controversial opinion about building a business or an insight into the industry, but one he has conviction and experience in. Then, he waits to see how the founder responds. The founder(s) can either:

  1. Disagree, and subsequently walk through where the dissent starts and offer a sequence of data and analyses as to why he/she believes in such a way.
  2. Agree, but still offer how he/she reached the same conclusion.

In either case, Jerry is looking for how mentally acute a founder is and how much room for discussion there is between them. On the other hand, the strike-outs regress to 2 categories:

  1. Disagree, and spend time trying to convince Jerry why he is wrong, rather than working to persuade Jerry to possibly see a bigger picture he might not have considered before. And sometimes, this bigger scope includes a marriage of Jerry and the founder(s) insights.
  2. Agree or disagree, but unfortunately, is unable to substantially back up their claim. Becoming a yes-man/woman in the former, or an argumentative troll in the latter.

The Mentorship Parallel

Unsurprisingly, just like how VCs use these methods to assess founder coachability, I’ve seen mentors use similar methods to assess potential mentees. Many aspiring mentees seek mentorship for its namesake – that metaphoric badge of honor. Not too far from the apple tree when people start a business or come to Silicon Valley to be called a CEO or for their company to be ‘venture-backed’. A category of folks we designate as “wantrapreneurs”.

And unfortunately, many aspiring mentees find bragging rights to be the mentee of [insert accomplished individual’s name]. Yet they don’t actually mean to learn anything meaningful, much less accept constructive criticism. Realistically, no mentor wants to go through that mess. “If you want for my advice, you better take it seriously,” as my first mentor once told me.

In closing

A great VC’s goal is to be the best dollar on your cap table, but they can’t be that Washington if you don’t let them be one. And though it doesn’t call for your investors or board members to micromanage, it does mean you are expected to be candid in both receiving and using (or not using) feedback.

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A Telltale Sign for a “VC No”

telltale sign, conviction, leap of faith, how to find a lead investor

Three moons ago, I jumped on a call with a founder who was in the throes of fundraising and had half of his round “committed”. And yes, he used air quotes. So, as any natural inquisitive, I got curious as to what he meant by “committed”. Turns out, he could only get those term sheets if he either found a lead or could raise the other half successfully first. Unfortunately, he’s not the only one out there. These kinds of conversations with investors have been the case, even before COVID. But it’s become more prevalent as many investors are more cautious with their cash. And frankly, a way of de-risking yourself is to not take the risk until someone else does.

I will say there are many funds out there where as part of the fund’s thesis, they just don’t lead rounds. But your first partner… you want them to have conviction.

Just like, no diet is going to stop me from having my mint chocolate chip with Girl Scout Thin Mints, served on a sugar cone. I’m salivating just thinking about it, as the heat wave is about to hit the Bay. An investor who has conviction will not let smaller discrepancies, including, but not limited to:

  • Crowded cap table,
  • No CTO,
  • College/high school dropout,
  • Lower than expected MRR or ARR,
  • No ex-[insert big tech company] team members,
  • Or, no senior/experienced team members,

… stop them from opening their checkbook. And just like I’ll find ways to hedge my diet outlier, through exercise or eating more veggies, an investor will find ways to hedge their bets, through their network (hiring, advisors, co-investors, downstream investors), resources, and experience.

So, what is that telltale sign of a lack of conviction?

I will preface by first saying, that the more you put yourself in front of investors, the more you’ll be able to develop an intuition of who’s likely to be onboard and who’s likely not to. For example, taking longer than 24 hours to respond to your thank you/next steps email after that pitch meeting. Or, on the other end, calling someone “you have to meet” mid-meeting and putting you on the line.

It seems obvious in retrospect, but once upon a time, when I was fundraising, I just didn’t let myself believe it was true. That investors just won’t have conviction when they ask:

Who else is interested?

A close cousin includes “Who else have you talked to?” (And what did they say?). If their decision is contingent – either consciously or subconsciously – with benchmarking their decision on who else is going to participate (or lead), you’re not talking to a lead (investor). And that initial hesitation, if allowed manifest further, won’t do you much good in the longer run, especially when things get bumpy for the company. Robert De Niro once said, in the 1998 Ronin film,

“Whenever there is any doubt, there is no doubt.”

You want investors who have conviction in your business – in you. Who’ll believe in you through thick and thin. After all, it’s a long-term marriage. Admittedly, it takes time and diligence to understand what kind of investor they are.

In closing

Like all matters, there are always other confounding and hidden variables. And though no “sign” is your silver bullet for understanding an investor’s conviction. Hopefully, this is another tool you can use from your multi-faceted toolkit.

From spending time with some of the smartest folks on both sides of the table and from personal observations, even if it’s anecdotal, the sample size should be significant enough to put weight behind the hypothesis. And, if I ever find myself wanting to ask that question, I aim to be candid, and tell founders that I’m not interested.

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An Underappreciated Way to Get a VC’s Attention

message, fundraising, investor list, how to get a VC's attention

It’s been a trying time for founders to fundraise in these turbulent times. On one end, you have investors who took a U-turn on plans to invest this year. On the other, you have investors still deploying or looking to deploy capital. The latter further breaks down into: (a) investors who are taking more calculated bets – raising the bar for the kind of startup that gets the capital, and (b) investors who find the opportunity to invest in the down markets. The latter cohort of the latter cohort seems to hold truer at and prior to the pre-seed stages among microfunds and angel groups.

The Tightening of the Market

Disregarding the investors who aren’t deploying capital anymore, it’s been harder than ever to raise. Here’s why:

  1. Anecdotally, more startups are looking to fundraise. Many have pushed up their fundraising schedules.
  2. The standard is much higher now than before. And that includes a stronger consideration for the problem you’re addressing. Is it anti-fragile? Is it recession-proof? If your numbers are down now, will they eventually ‘flip’ back on track post-quarantine?
  3. Valuations are taking a hit. Where before your startup may have been overvalued (especially in Silicon Valley), many startups are facing “more realistic” round sizes. And flat or down rounds are more prevalent.
  4. When investors can’t meet founders in-person, they’re resorting to data, data, data. Investors no longer have the luxury to benchmark a gut check over Zoom/email, as they would have in noticing micro-gestures and other situational context clues. Anecdotally, investors are spending much more time and putting much more weight on diligence than before.

And, that’s why founders, more than ever, should (re)consider fundraising strategies. This was something that I learned when I was on the operating side and at one point, working on the fundraising front for Localwise.

Much like when high school students apply for college, founders should have a three-tiered list – SMR, as I like to call it:

  • Safety,
  • Meet,
  • And, reach.

Safety

Safety investors are those that are definitely going to take the meeting. And will most likely invest in you (i.e. at the idea stage, this mostly comprises of family, friends, and colleagues, maybe even early fans via crowdfunding). Admittedly, they can only contribute small sums of money. Each check also carry little to no strategic weight on the cap table.

Meet

Meet investors are investors that will most likely take the first meeting, but you’ll need to do a little leg work to get them to invest. Many of these will most likely stick to being participants than leads in any round. They carry some strategic weight on the cap table – in the capacity of their network, their brand, or advice.

Reach

Your reach investors will be your greatest sponsors. The people who have the highest potential to get you hitting the ground running. These folks usually have crowded inboxes already. And you’ll need to figure out how to best reach them. Unless they reach out to you, you will most likely fall just short of their gold standard. But once you stget these onboard, your relationship will set you up for reaching your next milestone better than any other individual partnership. At the same time, they will be the ones who are most likely going to have true conviction behind your product, your market insight, and your team. They typically lead rounds, and carry great strategic value to your startup (i.e. top tier investors, SMEs, product leaders in your respective vertical). For lack of better words, your ‘dream girl’ or ‘guy’.

Your Priorities

When pitching (and practicing your pitch), go for a bottom-up approach. Safety, then meet, then finally reach. And ideally, by the time you’re pitching to your ‘dream girl’ or ‘guy’, you’d have refined your pitch that best fits their palate.

When prioritizing time and effort, go top-down. Since you have limited bandwidth, spend the most time doing diligence on your reach investors. Then meet. And if you still have time, safety.

Diligence and Reaching Out

During your diligence process, look at their team, their individual and collective experience. Is their partnership, especially the checkwriters, diverse? Were they former operators? Or career VCs? And based on what they have, what do you, as a founder, need the most right now? Also, to better understand the marriage you’ll be getting in to, talk to their portfolio startups and investors that have worked with them before. Pay special attention to the the venture bets that didn’t work out. Was there a break up? If there was, what was it like? How did the investor help them navigate tough times?

It’s easy to be positive and cohesive when things are working out, but how does that investor react when things aren’t going as expected?

After talking to the (ex-)portfolio founders, if you feel like they have a good grasp on what you’re working on and are excited for you, ask them for an intro. Focus on those founders who have gone through the idea maze in your respective vertical, or an adjacent one. If you’re defining a new vertical, or that investor has just never invested in your vertical, but has expressed public interest of pursuing investments in yours, ask founders who have the same or a similar business model to yours. After all, that’s going to be the kind of solid warm intro you want.

In Closing

Though there are other ways to get in front of investors (some more questionable and/or gutsy than others), including, but not limited to:

  • Warm intros from friend/mutualLinkedIn connection,
  • Cold email/DM,
  • Reaching out to a more junior team member (scout/analyst/associate/principal),
  • Presenting at accelerator/incubator Demo Days,
  • Presenting at a hot conference, like TC Disrupt or SXSW,
  • Volunteering at the same non-profit as them,
  • Auditing their lecture at Stanford,
  • Or, squeezing into their elevator (although most VC offices are pretty lateral)…

… anecdotally, it seems many founders overlook the means of getting an intro from a VC’s portfolio.

Photo by Marvinton from Pixabay

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