Ask an Investor: How do I connect with VCs? | BetaKit

Welcome to a weekly series of betakits designed to help startups and entrepreneurs. Each week, investors tackle the tough questions facing founders today. have a question you would like answered? Tweet them with the hashtag #askaninvestor, or email them here.

If you ever want to raise capital, establishing and maintaining relationships with venture capitalists is critical to making your life easier. You’ll need to meet VC in your space months before you need to fundraise. it is much easier to apply for financing once you have developed a relationship and trust. develop that relationship before you need to fundraise.

This strategy also bypasses trying to raise funds at the last minute in a panic, trying to extend your runway. desperation is never sexy.

The good news is that building these relationships is relatively predictable.

step 1: create a list

identify vcs active in your space. In particular, identify companies you might be interested in doing business with in the future. You can start identifying potential businesses both online and by word of mouth. open data platforms like crunchbase are a great start. Look for companies that have invested in your direct and indirect competitors (cross them off your list of potential investors) and companies in adjacent verticals (add them to the top of your list). Similarly, local business conferences are a great place to get a list of venture capital firms that will be attending.

Not all ventures publish their investments, so it’s also important to contact other founders and get lists of potential investors from them. new companies that have recently completed a transaction must have a new list of active companies. attain! Later when you’re talking to vc, you can also ask them who they’d like to co-invest with.

step 2: select the list

once you have a list of potential companies, drill down and identify their investment mandate and connect it to your company. your goal here is to divide the list into three categories: obvious fit, possible fit, and & long shot.

possible adjustment: you have 2 of 3 stage, focus and size.

long shot: all others<./ul>

Typically, most VC firms will publish their investment thesis or mandate in some form on their website and sometimes it can even be found in a boilerplate press release.

as an example, my company’s standard text, printing ventures, reads as follows:

• impression ventures is a venture capital firm with committed capital drawn from some of canada’s leading financial institutions, entrepreneurs and financial services executives. The company is focused on investing in and leading deals in financial technology (fintech) companies, elevating late seed to early series and looking to bring their beta or mvp product to the local market with the long-term goal of bringing the product global. . impression was founded in 2013 by businessman christian lassonde and is co-managed by managing partner maor amar. Printing has offices in Toronto and Montreal.

This model tells you a lot about our stage, focus and size.

• stage: beta or mvp product to market: we are looking for companies that have a product on the market, even if it is very early.
• approach: we focus on financial technology. approach is a common euphemism for “we just do.” in this case, we only do fintech deals. healthtech companies and others will want to remove us from their list.
• size: we invest in rounds between late seeds (a euphemism for seeds over $2 million) and series early to (ie, $6 million). if it’s rising outside of this range, we’re not on their “obvious fit” list.

There are a couple more details that can be found in the model text:

• some companies just lead, some just follow, and some are indifferent. It seems we lead deals. Since we call leader in our standard model, I wouldn’t bet on our company joining a union.
• We use the words “taking the product global.” that probably has something to do with our thesis. local plays only, take note!
• sharp founders will also read how we describe our lps (the fund investors) which is likely to relate to the nature of the added value we bring.
• lastly, you’ll notice we have offices in toronto and montreal. good to know when thinking about the locality.

See how much information you can get from a simple model! look for these snippets of a fund’s mandate wherever you can find them. on your website, in press releases, in news articles, and even on twitter or facebook profiles!

Your time and energy are valuable resources. so cross everyone off your list of long shots. don’t waste your time on companies that will have no interest in you. there are hundreds of venture companies. Now is the time to focus on your top two lists and get kick-off meetings.

step 3: get a presentation

never send cold emails. vc, like most other professionals, rarely if ever reads cold emails. even if cold emails are read, they send the wrong message. While it may seem harsh, sending a cold email sends a message that you don’t have the network or the wits to get a proper pitch. it can diminish your credibility and indicate that you are not familiar with the fundraising process.

Conversely, receiving a warm introduction can help you quickly establish some credibility. this is especially true if a presentation comes from the right person. Take advantage of their contacts and networking events to find out how you can get a personal introduction from a VC of interest. If you’re a first-time entrepreneur or just lacking connections, it’s time to get on the event circuit.

never send cold emails. Don’t take warm introductions too far, either. vcs responds accordingly.

start by focusing on companies located very close to your startup. It makes sense that the first and easiest VCs to find are usually located geographically close to you. they are the ones most likely to attend launch events, competitions and conferences near you. Find out where the companies on your lists might be attending events.

Go meet them at those events. Assuming you’ve done your homework on companies and funds, when you see a VC at an event, go talk to them! remember, they are also attending to network and find opportunities. help make your evening worthwhile. This is where doing your homework in your thesis comes in handy. When you first approach a vc who is interested in building a relationship, establish credibility early by making it clear that you’ve done your homework. perhaps ask them a clever clarifying question about their thesis. never presume to know it inside and out. then tell them a little about your business, that you are not fundraising, but always seeking the advice of experts in your field. I’m serious.

Second, approach venture firms with local portfolio companies. same modus operandi as above. meet the founders of local firms at conferences or other informal events. network and, where appropriate, ask them to introduce you to their investors if they deem it appropriate.

Finally, don’t go overboard with warm introductions either. this seems to be a more recent phenomenon, but now I regularly get pinged three or four times for the same deal. These founders have taken the warm introduction request too far, and again, it sends all the wrong signals. Don’t ask more than two people to introduce you to a particular VC company. if you don’t hook up within a month, then it might be okay to ask another couple for a warm introduction, but not sooner.

step 4: build a relationship

once you have a connection, make it clear that you are looking for advice and not a fundraiser. when they give you their advice: listen. you don’t have to take their advice, but you should own up to what they say.

That said, if this is a company you want to do business with, they likely have experience and some wisdom, which will be relevant to you. Not only will you feel less desperate when you approach an opportunity this way, but you’ll also be more likely to grab their attention.

Once you’ve been successfully introduced, don’t harass your new connection. maintaining the relationship is important, but too often people go overboard. don’t fall into the category of wasting time. this will surely irritate your potential investor. stay in touch, keep up communications when relevant, and check back regularly. This may sound like Relationship Management 101 but it’s important to remember. You want to build your company’s history with a potential investor by signing up and keeping your interactions meaningful.

success: you have passed the first presentation. beyond this point, tailor your relationship as needed on an individual basis. some funds will want to hit base periodically. some will say outright that you don’t fit in, in which case, move on. some will want to subscribe to a newsletter. each one is different, treat them accordingly. unfortunately, nothing is formulaic beyond this point.

sarah’s opinion

as christian highlighted, building a relationship with vcs has many formulaic aspects: understanding the investor landscape, narrowing your focus to the most relevant (and realistic) funders, leaning on your network for guidance and introductions, and using your eq to build relationships however, it is important to take into account the human element.

relationships cannot be designed and interactions cannot be played. respect that there is a human being on the other side of the process; funding is not simply a matter of ‘data in leads to money out’. Investors have competitive priorities for their portfolio companies, other startups they are evaluating for investment, internal reporting that needs to be done, and hiring needs. In the same way that you map out your weekly priorities, investors are constantly asking, “what is the best use of my time this week?”

focus your interactions on giving them a reason to prioritize you, which means tailoring your story, sharing the groundwork you’ve already done in the space, and yes, creating a little fomo around the opportunity.

photos courtesy of unsplash.