Love at first sight

Venture capitalists (VCs) are in the business of saying ‘no’. This is core to their business model. As Jeffrey Bussgang explains in his great post on the VC process, investors will look at almost anything but will only move forward on a tiny handful of deals. As Jeff explains: “…see everything to be a better investor, but exert a very tough first filter so that you only spend time on very, very few deals”.

Given this reality, it should come as no surprise that if you don’t have love at first sight you likely won’t make it through that tough first filter. I’ve been raising venture capital since 1999 and have done hundreds of VC pitches. In every situation where we got serious and started working towards a term sheet, it was a clear case of love at first sight.

I hate to admit this, because as a fund raiser I always want to have a robust pipeline with lots of VCs at the table. But the fact is that if there isn’t genuine excitement from your champion at the VC fund, your chances of getting to the finish line are slim. If your champion isn’t emotionally engaged and excited about you, your space and your technology, no amount of diligence and market sizing will get them over the hump. Either your conversations will continue sporadically or simply stop all together.

So what’s a love struck entrepreneur to do in order to ensure his prospective investor feels the same way? You have two options: either come in fully prepared and ready to blow them away or pre-sell.

Getting married after 2 meetings: If you need to raise funds quickly then you don’t have time to let the VC gradually get to know you. You need to get them in to a deal cycle now. This means that you must have your act together before you meet them. Your team, technology, market traction, financial performance all must be at or above what VCs are expecting at your stage in the lifecycle (I’ll cover these expectations another time). Since you are asking VCs to make a buy decision now, they will be looking to poke holes in the story. You must be prepared.

The pre-sell: This is the ideal way to go. If your bank account permits it, socialize your company with the VC community. Set-up meetings just to brief them and to set the stage for an eventual fundraising. You’re not asking them to buy stock today. You’re just briefing them.

Three things come out of the pre-sell:

You get valuable feedback to help you prepare for that round;
You have a warmed up pipeline of funds ready to hear the real pitch when the time comes; and
(almost) Nobody says ‘no’ because you’re not asking them to buy.

So, regardless of whether you need to raise now or have the luxury of doing a pre-sell, just remember that if it’s not love at first sight, it’s not likely to happen.