How to Approach a VC for Funding

So the most important thing to remember as you think about building relationships with investors is exactly that. It is a relationship. I think too often founders think of it just as money or as a sales pipeline that you're trying to get your way through to find the perfect match versus thinking about this as a long term relationship. You know, the, the duration between a seed stage founder and a seed stage investor. That relationship can last up to 10 years, even longer, which sadly is a bit longer than the average marriage in the United States, which is about six to seven years. So think about this as dating, as building relationship, as building trust, as finding the right fit for someone that you want to work through hard stuff with over a long time period. So one of the biggest mistakes I see founders make is not doing research on the investors that they are communicating with. It doesn't take a ton of work to look at a website, look at somebody's Twitter, look at somebody's blog, look at somebody's LinkedIn to figure out what areas are they investing in and what are they excited about. I cannot tell you how many emails I get that talk about either consumer investing, CPG goods or later stage B rounds in FDA regulated industries. I don't do any of those things. That's not what we invest in. We invest in seed stage B2B software. And if anybody had done any research on Underscore or on me personally, they would have figured that out. Occasionally I'll get some cold emails that actually do catch my attention and what has stood out about those is it's clear that the founder has done some good research on why we might be a fit as an investor and a founder and why I might be interested in their company. It's concise and tight, but also there's some specifics in terms of, oh, I saw that you invested in this company and therefore I thought you might be interested in what we're doing because of this, this and this connection or I saw that you were really excited about this space. I read your blog, I thought this point was interesting and I actually see it this way, which is kind of complimentary. And here's why I thought you might be interested in what we're doing. So start off, do your research. This should be done far in advance of when you need to be actually actively fundraising. So think of this as a long process of building a curated, vetted list of people that you want to get to know over a 12, 18 month, even multi year process and timeline. Start to build this roster. And this list should probably be 40 to 50 people long to start. Because what you're going to do is then you're going to work with your network to help get warm introductions to these investors. I would say in sort of the hierarchy of warm introductions, if you can get an introduction through a investor's portfolio, company founder, so another founder that they've already invested in, that is probably the most warm introduction or referral that an investor can take, I think secondly through an operator, whether it's an angel investor or somebody else who's an experienced operator, investors love those warm introductions as well. And then finally through co investors. So perhaps it's your pre seed investor or another investor in your network. That's another great profile in terms of trying to get a warm introduction to the people you're trying to meet. When you do that, make it easy for people making a warm introduction, give them a little bit of a blurb, perhaps a deck. Make it as easy as possible for the person you're asking for the warm introduction to, to make that outreach and set you up for success. What's the positioning that you want to have? This should not be super, super long, it should be tight and to the point. It should include quick mention of team, of what it is you're doing so the problem that you're solving and what you're thinking about from a raise perspective. So that way an investor on the receiving end of that warm introduction can quickly qualify. Is this a fit for me? Is this something that I'm interested in from a stage perspective, from a domain perspective? Do I potentially have a competitive investment that I should be aware of and save both of our times? And so what you're trying to do in this whole warm outreach process is to pre qualify. So that's the curation of the list. Then work to get your warm outreach. And in this first meeting, in an ideal world, you are not actively raising yet, but you are getting to know people. And I would actually say that in your meeting, if you sit down with an investor and say, you know, we're not actively raising right now, you know, we have capital, we're focused on operating the business, but I'm starting to pick my head up and get to know people to find a partner that might be a fit down the road and so you don't necessarily need to show up with a perfect pitch and a complete deck and we'll talk about sort of what are some of the different deliverables or materials you want to have along the way. But oftentimes in that first 30 minute introduction meeting, it's a chance to mutually get to know each other. I always think about with a good sales process, and this is a sales process, but a relationship focused one is you want to get to the next meeting and that's really the goal in that first meeting and getting to know investors. So think about what you want those headlines to be. Those could be things around what is your team? Why are you uniquely qualified as a founding team to go after this problem? What is the problem that you're solving? How big and pervasive is that problem? So why does this matter? And then what is it about your solution that is unique in terms of solving that? The other thing that you could share at a high level is what are some of the milestones you've already achieved? We've built this team, we've got a couple customers, we've got product live and it's doing what we said it was going to do. So think about some of the achievements that you've set to date. But again, I would keep it in the headline level to get their interest with the goal of getting the second meeting. I think the other thing in getting to know investors is come prepared with questions for them. Again, you want this to be a relationship and every relationship needs to be a two way conversation. So think about what you want to learn about them. Some questions that you might ask might be around. What is your thesis on the space that I'm building in? How have you seen it shift? How do you expect it to shift in the next couple years? Maybe about what are some recent investments that you've made in this space? What got you excited about them? You can also ask about things around their firm and how do they work as an investor. So things like what type of support do you offer portfolio founders? How do you like to communicate with your founders? What can I expect from a firm and your partnership or your platform team or whatever it might be in terms of what they offer? So I think too often I see founders go in, speak as fast as they can, throw as many numbers as they possibly can in detailed slides in a 25 minute conversation, and I think it can actually miss the mark because it's over pitching and not focus on relationship building and truly pre qualifying in a mutual relationship. So you're going to start to whittle your list as well. And in an ideal world you'll end up with a list of investors that you want to continue to get to know. And hopefully you've gotten them excited enough about you that they want to keep getting to know you as well, so what that can look like over Perhaps maybe a 612 month period is regular updates. And we really recommend that founders do monthly updates to their existing investors. And oftentimes you can include prospective investors on that list. What that allows you to do is a keep yourself top of mind and keep in touch with a whole bunch of investors. It also allows you to show off your progress on a month by month basis that you're building across the business, which can help give confidence to investors. And if you're doing it right. I saw one founder who shared their monthly updates and there was a specific month, I'll remember it very well. It was February where they had just made so much traction that those prospect investors who are on the receiving end of their monthly updates turned around and said, hey, we're really interested in catching up, can you catch up? And they were basically able to preempt their round and get people proactively excited because they had been so consistently communicating and it was clear that they had hit an inflection point in the business and the investors took notice and, and then reached out to them and so filling their stack of those, you know, all those first meetings that sometimes can be so hard to get on the books. It was actually their monthly update that triggered it and they were able to have a very expedited and successful seed raise because of that clear communication. The other thing you can do in addition to the regular monthly updates is sort of quarterly or maybe bimonthly check ins. And again, these can be 25, 30 minute calls with the investor that you're building relationships with. And it can be a bit of a catch up. Again, it should be a mutual catch up. Here's what's going on in the business. Here's what we said we were going to do in this last period. Oh, and by the way, we did all of those things and more. And again, thinking in headlines and giving them that touch base. Likewise, use it as a chance to get an update from them. What are you seeing in market? What's shifted? What are you guys looking for in seed stage investments at this stage? What are your expectations? And so again, it's a way to build relationship, build rapport, build trust and understanding. The trick then is in those conversations, hopefully you've gotten a pulse check on what are people's interests? Am I at the level of progress that is sort of right for the people that I want to get around my table? And then you can sort of switch mode into not raising to actively raising. But I think that's an important distinction that helps investors understand both where you are and can help you run a tighter, more focused process. Because you've done all of this legwork in pre qualifying investors building relationships so that when you flip that switch to actively raising, you already have momentum going into it and you're not starting cold. The reason why that matters is, you know, a lot of these rounds can be most successful if you have multiple people interested and you have them roughly on a similar timeframe, rather than all your first meetings spread out over many, many, many weeks. In an ideal world, you can kind of keep everybody on a similar timeframe and track and moving along at a similar pace. So if you do this pre work in qualifying relationships and building your materials, hopefully you should be able to run kind of an expedited process.