It's one of the most awkward conversations to start, ever--the one between the entrepreneur and the possible investor. Over 3,000 startups successfully raised Series A last year. They figured it out. The venture industry also had a great year last year, attracting $33 billion in new money to lavish on startups like you.
All that largesse doesn't make it any easier for you to open the conversation, though. Here is what actual venture capitalists say about how to approach them--with some reality checks from founders who have recently run the gauntlet well.
1. Munch your way into money.
Ken Lin, founder of Credit Karma, recently raised $350 million at a $3.5 billion dollar valuation. He says,"Whether you’re in the process of fundraising or just thinking about it, you should be networking relentlessly. Every happy hour, conference and post-conference dinner is a new opportunity."
Active early stage investor David Cummings is a fan of multiple encounters, too, suggesting, “The best time to raise money is where you don’t need it. Meet with and build investor rapport well in advance of fundraising."
Venture capitalist Mark Suster is also goes in for the long romance. "I had 15 meetings or more with Evan Rifkin over a 2-year period of time long before I invested in Burstly. In fact, long before he had even founded Burstly, I knew he was one of the most talented entrepreneurs in LA."
Fortunately for you, venture is a people business. VCs like coffee. Breakfast. Lunch. Wine. Scotch. Cooking schools. Sailing. Conferences. Golf. You name, if it involves talking, you can probably rope your VC in.
2. Make your disadvantage your advantage.
Venture capitalists are specialists. They are in the pattern matching business. They have a template of what success has looked like for them in the past, and they apply it forward. Patterns become visible when you look investors up on either Crunchbase, Angelist, or Gust. Take a look at trends you can spot in their founder bias--because they have one.
For example, Dayna Grayson, partner at NEA, runs one of the largest seed funds on the planet. "We invested in Box, and are looking at on-demand services right now,” she shared recently. “Security, for example. We back a lot of first time entrepreneurs--we see expertise in those who have experienced the problem, connected with all the people, who are up to speed, current." Hear a pattern?
Trinity Ventures partner Patricia Nakache provides another example of pattern bias--this time, from entrepreneurs. She used to be annoyed at being constantly identified as a woman venture capitalist. "I want to be a great internet venture capitalist--as opposed to woman venture capitalist. We want to win on a level playing field. And not shine a spotlight on what makes is different."
However, over time, she credits Trinity's general partner as showing her the other side of the situation. "Larry really helped me see what that in fact, in this world of hyper-competition, you have to embrace what makes you different and unique. It could be your competitive advantage." Today, Trinity, like NEA, is ranked among the top 100 early stage investors in the country.
3. Count on confirmation bias.
Branch.IO's Mada Saghete recently raised just over $18.1 million. "I think the worst is that people categorize you as being different when really, I am just another developer-turned-marketer who is trying to help other developers. The fact that I am a woman should not play into it."
No matter which kind of founder you are, it's true that some of the characteristics you have perhaps should not play into fundraising. But often, they do. Mada's first seed investor was Mar Hershenson, the woman managing partner at VC firm Pejman Mar. That led to a Series A with Aileen Lee’s Cowboy Ventures participating with others, including Pejman Mar. Rather than fight it, consider using confirmation bias in your favor. Seek investors that are 'like you' in some way or see you as reflecting a trend they can fall in love with.
When you've done all the research you can, then just let go and just have the conversation. And then, the next one. Glenn McGonnigle of Tech Operators, a venture firm based in Atlanta that specializes in global big data and cyber opportunities, is known for bringing an operating network to their portfolio. He says, "I want to know if I can have a conversation with the person. Will they take my advice? Can we connect?" As a firm leveraging significant relationships and operating experience, you can see why a solid back and forth connection is a critical one.
5. Work toward your real.
The ultimate rule of raising your first round is to work toward being yourself with VCs you are truly interested in. They want to know they can coach you. You need to know they have more than a pot of gold to bring to your potluck.
Ken Lin says, "You need to look for the investors that understand the issues you’re facing as a company and who have the right insight to help you navigate the next area of growth. If you push for one high valuation but aren’t executing organizationally, you can put yourself at risk of collapse."
Kim Gordon, founder of Depict, just raised $2.4M last January. She said before her successful raise, "Look for people who share your passion and vision. If you find yourself up in front of a VC looking for the next hoodied instafacechat ZuckerSpiegel, don't try to convince them that's you, but do make a mental note to email them when your company goes public." Words to live by.