A founder's guide to conversations with Midwestern VC firms
I remember the feeling of meeting with prospective investors and wanting to make a good impression. The first few conversations with an investor are high-stress and full of subtle signals. Most founders have good instincts and navigate these situations well, but the points below comprise some of the nuanced issues that I have observed over the years from the other side of those meetings. Hopefully these apply to early stage VC conversations in general, but note that they are specifically biased toward founders in the Midwest.
Do: explain what you do quickly and simply
I can’t count the number of pitches where we get 10+ minutes into the meeting, and I have to ask them to stop and give me the quick, cookie-jar-level summary of exactly what the product is and who uses it. It leaves me wondering, is this what their sales pitches are like?
Don’t: assume that any female at the firm is an admin
It’s appalling to feel the need to write this one, but I have more than once been part of an email thread where the founder assumed that a female partner at our firm was an admin and asked her to schedule. I’m still speechless.
Do: court the firm
Cultivate a relationship. If you first meet while not fundraising, send them updates. Call your shots! There’s nothing more impressive than an entrepreneur telling me what she will accomplish, then following up a few months later to show me exactly how she did it.
Don’t: send someone other than the founder
I get it, this is a double standard because a VC firm is likely to send an associate or analyst to an initial meeting, but the startup needs to send a founder or CEO. An early stage venture investment is a bet on the team more than product or traction, so you need to do everything in your power to show why your team is the right team.
Do: be honest about the risks and challenges
Every once in a while, there is this weird dynamic where a founder or team seems like they are absolutely intent on selling me that everything is going to be a piece of cake and they know exactly what they are doing. This one may be a personal preference, but I find it intellectually dishonest and a bad sign. Yes, I want you to convince me that you know are the right person/team for this market, but I also want to see that you understand that magnitude of the challenge you are facing. It won’t be easy, and I want to feel assured that a founder grasps this and won’t give up at the first series of speed bumps. As a founder, if you find yourself on the receiving end of the question, ‘what keeps you awake at night?’ consider whether you are giving a vibe that makes it seem like you expect a cakewalk.
Don’t: channel your inner bro
If it’s the beginning of your relationship with a VC, then err on the side of being professional. No photos of yourself or your team in a swimsuit or with a beer. No innuendo. No videos of you gathering customer feedback on the street by offering them a ‘mystery shot’ (note: this also actually happened. Still speechless about this too.)
Do: sweat the details
Little stuff. On your slides/emails; punctuation, font, alignment, typos. In a meeting; name recall (don’t call me Tyler). I wouldn’t draw a hard line on not funding someone because of a typo, but the more organized and buttoned-up you are, the better I feel.
Don’t: downplay competition
Some founders seem to think that VCs want to hear that there is no competition. We don’t. It’s never the reality in the market and it demonstrates a lack of market understanding. Perhaps what you’re doing has truly never been done before, and the competition is non-consumption. Fine. But what I want to hear is what your competitors are good at (or how it’s being done today), and then why you have a special place in the market — your distinct competitive advantage that will allow you to win customers.
Do: assume firms talk to each other
The herd mentality present in venture investors has been well-documented. I’m not defending it, but rely on the fact that firms talk to each other. If you tell me that $FIRM is looking at investing, and I know them, I’m going to call them. And if the story they tell me is different than the one you told me, I generally ratchet back my enthusiasm. To be clear, it’s not that I am looking for another firm to confirm or deny my interest; it’s that I expect a founder to be honest about the level of engagement at another firm. If you tell me that $FIRM is about to send you a term sheet, and my conversation with a person at that firm lets me know that they met with you once and are nowhere near a term sheet… well, in the words of my man Marlin in Finding Nemo, “good feelings gone.”
Don’t: go answer-shopping within a firm
Yet another one that shouldn’t have to be said, but… it happens. If one partner gives you an answer you don’t like, don’t resurface one week later talking to a different partner. We talk to each other, and you’re going to burn a bridge.
Do: have conviction
Most VCs are curious and creative people. Too many times to count, I’ve seen an investor thinking out loud about variations of a product or market strategy, and suggest a change of strategy to the entrepreneur. Obviously, you should be respectful and try to be open to good ideas, but don’t roll over and accept the new ideas blindly. Show conviction about why what you’re doing is the right thing, the right way, at the right time.
Don’t: name drop
I’m not saying don’t tell me about your marquee, name-brand customer. Just don’t go out of your way to drop names and act like it’s no big deal. Related to this, don’t artificially pad your deck with an ‘advisory board’ full of big names who barely know anything about your company.
Do: keep it brief
Especially in the midwest, you’re not going to close a deal at the first meeting. All you really want is to get to the second meeting. Don’t show up for a 30-minute meeting with a 50-page deck, and don’t send a 10 paragraph email. keep it simple and brief. Capture imagination and let the investors digest it before you get into the weeds. Arm them with the facts they need to make a sensible decision about whether to move forward, don’t overwhelm them with details that may just muddy the waters. Have back-pocket info to support your high-level points, in case a probing question is asked.
Don’t: use an investment bank for an early stage round
Signaling is a word that comes up very often in the VC world. Using a banker or consultant to fundraise on your behalf doesn’t signal good things. My immediate question is: “did they try to raise money on their own and fail?” Not to mention, no early-stage investor wants his/her investment going toward transaction/finders’ fees.
Do: your homework on the firm
What types of deals does the firm tend to do? Are there specific partners that seem to attach to specific sectors or types of companies? Are you raising an amount that fits with the firms check size? Does the firm have a geographic focus? Read up on any of the investors’ blogs or tweets or anything you can find. Google and Crunchbase are your friends here.