It's been a busy week that ended with very goo results for a budding entrepreneur.
It was a pleasure to assist a first-timer prepare for and contact investors. We communicated with 6 VCs this week and got encouraging results: 1 firm "Was not making investments at this time", 1 was moving into other private equity (and offered introductions to 2 fresh firms), 2 were discussing the startup idea with their partners, and2 of the best on the list made appointments for presentations.
You also can get results like that.
Here are more tips to get you there, these are the things we did this week:
- Pick 12 investment firms to contact. You have to do your homework. Start with who invested in your competitors. Then find who put money into related companies, those startups in similar space as your company. Look at the Portfolios of each firm to see what the expertise is in the firm, which industries they are familiar with and the names of the companies.
- Select 12 Partners to contact. Look at the Portfolio investments and find names of Partners on the boards of directors. Then look at the description of the Partner on the website of the firm. Decide on the names of the Partners who sound most attractive to you.
- Divide the list into two groups, Wave 1 and Wave 2, of 6 Partners each. Look at the size of the firm, its reputation, expertise, and cash available to invest. Do they do seed rounds, or only later stage deals? Are they branded with what you want to be associated with? Can they bring more than money to your company? How good will they be on your board of directors?
- Get introductions to 6 Partners. Do not call or email without an introduction. That is a waste of time. You have to get help. Try lawyers, accountants, other CEOs, angel investors, entrepreneurship professors, and startup coaches. Go to public meetings where there are investors, they are there to find you. Modify your Wave 1 list as you need to (e.g. cannot get introductions to 3 of the Partners). The introductions can be a simple email.
- Have your elevator pitch and follow-on PPTs ready to email. This is the short single paragraph you will use to (1) email and (2) to speak as you leave voice mail about your email. Include what round of financing you are looking for (Seed, A Round, B Round, etc.) Leave the dollar amount blank. That is discussed during face to face meetings. This is the most critical paragraph you will write. Short is very difficult. Spend time carefully crafting it. Like the bait on the hook, it has to get the fish excited enough to say "Tell me more" meaning you are invited to email a PowerPoint presentation to the Partner.
- Wait before emailing the PPTs. The investor may have a conflict of interest (just invested in or is seriously looking at a competitor). Or he may be only investing in later stage deals than you are looking for. Or he may not like the space you are in.
- Send PPTs that are self explanatory. Yes, use few words per page. But use enough so the Partner understands enough to make sense out of your idea. If he gets lost, you'll lose him. Keep the deck as short as you can. I always aim for 12 slides but end up with 24to 36. No one complains of the length of the story is clear and exciting.
- Follow up. Give the Partner 3 days to digest your offering. Then email to ask "What did you think of our idea" or something like that. Continue the follow-up emails every 3 days until you get a response. Be patient, be persistent, be short in these emails. VCs are over-committed (like entrepreneurs) and are constantly putting out fires. Delays in responding to you have little to do with you and your idea.
- Continuously replace drop-offs with new investors. Keep 6 investors alive. You need that number to finally get 2 or 3 competing for your deal. Competition is your best friend. Keep looking for fresh investors to add to your standby list.
- Decide on when to stop. Pick a number of months. When you near that stoppage date you'll know if you have a good or poor chance to get your money. Most continue trying a bit longer. Others toss in the towel and go look for a job, gaining the experience and thinking about another idea for another startup. Often the second idea presented to the same investors gets the money.
BOTTOM LINE: These are how it works for most deals. The process you use can be different, but most successful deals are done this way. Yes, I know, the blogs you read about kids getting lucky do happen, but only rarely. Most startups have to work very hard to get their money. When you can become a master of this money raising process, you'll add a powerful element to your unfair competitive advantage.