During the last 6 months at Brill Street, I’ve had the opportunity to be involved in several dozen meetings with area VCs. I’ve also been able to work with my boss, who is a VC himself and has a very generous heart when it comes to sharing knowledge. Needless to say, it’s been a spectacular learning experience.
In the process, I’ve managed to cobble together a few early lessons that I’ll hopefully have the presence of mind to remember in the future. While certainly not rules, and most likely flawed due to a limited sample size and my own incompetence, I do think they might prove useful to start-ups looking to interact with venture capitalists on their own ventures. As with anything I say, your mileage may vary.
The most important thing is the team
I had heard this maxim frequently in the past, but had considered it hyperbole. It’s not.
Everyone has ideas for a company, and many of them are good. The idea, while important, is not the difference between success and failure. Execution of a mediocre idea is much better than a great idea poorly executed.
It takes a great team to execute on an idea successfully. VCs have learned that a smart, aggressive, flexible team of people can make things happen.
This is why they’ll often hire “entrepreneurs in residence” – someone who they think is talented and can make something happen, but who is between opportunities (most likely following a sale). They’ll pay this person to come into the office, listen to pitches, and think – and when the right opportunity comes up, they back them.
Simply put, they bet on the jockey and not the horse.
Which means when you’re thinking about your pitch, you need to seriously consider the caliber of your team, and if necessary make some upgrades or additions.
If your business is highly analytical and you lack a marketing whiz with expertise in running those kinds of campaigns, you’re in trouble. If you’re a tech company without a technologist, you’re in trouble. If you’re trying to sell an enterprise product and no one has experience dealing with the drawn out, convoluted enterprise sales cycle, you’re in trouble.
It’s also important to be honest with yourself – do you think that a VC would be comfortable putting money into a venture that has you at the helm? There’s a chance that the only thing standing between you and an investment is you.
If your venture could benefit from someone with more expertise or with a personality and disposition more suited to a CEO role, have the humility to find that person, make them a great offer and take on a role that is better suited to your skill set and personality.
The team matters more than anything else.
Listen, and be flexible
Most VCs are very smart people – most have been successful on their own prior to joining the firm, and they have had access to thousands of business plans and first-hand experience with dozens of startups just like yours.
Which means that when you’re pitching a firm, you should treat it as an opportunity to learn and not just a presentation. Most startups rarely end up doing what they originally set out to do, and the smart ones listen and adapt faster than the others.
During the course of your pitch you’re likely to get advice, often in the form of repeated questions around an area of weakness in your plan. Don’t bristle at this – learn to listen to it. It’s likely they’ve seen a similar company fail for precisely that reason. At the very least they’re pointing out the weakness in your pitch, which if corrected could lead to more success in future meetings.
It’s also important to listen during your pitch because they’re paying attention to you as much as they are to the deck. They want to see if you’re flexible. They want to see if you have logically thought through your ideas, and if not, how you react to weaknesses in logic being presented. They want to see that you can take advice without getting upset, since they’ll want to be able to do that as investors should they pull the trigger.
A mediocre business manned by someone who can listen and adapt will become better and can possibly become great. A good business manned by someone who’s inflexible and stubborn will probably never become more than what it already is.
Know your odds, and don’t take it personally
Many entrepreneurs I’ve talked to in the past about failed attempts at raising money had a chip on their shoulder, as though the VCs that turned them down were idiots or were doing it to spite them. In reality, these folks probably just didn’t have a solid grasp of the numbers. If they thought about it at all, they would probably have thoughts that the firm is choosing between them and, say, 10 other ideas.
The firms I’ve seen so far make only a few investments a year. So if you figure on any given day they’ve heard at least one pitch, and if you figure that of all the pitches they hear during the year they’ll make maybe three investments, you quickly see that the odds are not in your favor.
Which means that you should a) do everything you can to understand what those few investments tend to have in common, and b) not take it personally if a firm doesn’t choose your company for an investment. If you were putting several million dollars of capital into a company, you’d be picky as well.
Know your audience
Venture firms, and the partners who make the decisions within them, have certain industries or types of investments that they are drawn to. This could be based on their prior work experience, or a result of previous investments. But before you try to sit down with someone, it’s important to know what they’re investment preferences are – in many cases it’s not a stated purpose of the fund, but simply the personal preferences of the partners.
VCs like to have deep knowledge of the space. Lack of expertise in an area represents a risk – and with all the other things that could go wrong with an investment, it would be foolish to jump into a deal without sufficient knowledge or expertise. So don’t be shocked if a firm tells you that you have what sounds like a great idea, but that it doesn’t excite them – you could just be outside of their comfort zone.
People prefer to work with people they like. If you have a great idea and a great team but are arrogant and abrasive, you’re probably going to have a difficult time raising money.
If a VC firm takes on an investment, they will probably take a board seat, and will be actively involved in the business offering advice, making introductions and trying to make the venture succeed. Which means they’ll be spending a lot of time with you. If you’re a jerk, they’ll probably think twice before entering into that kind of relationship.
So be friendly at all times – be humble, be gracious, be thankful that they’ve taken the time to sit down with you.
And remember that they all talk to each other, and that word can spread about your hot temper and derail your efforts at any other VCs you try to sit down with.