Venture capital is good for a company that technology can accelerate. There are great small businesses but they’re not necessarily companies that will scale at the speed and get to the size that VCs want. - Susan Lyne
Finding the right investors. Think of it like building a sales pipeline. First you have to fill the top of your funnel, and that means scouring the market for investors who would be a great fit. Here are some factors to consider: Stage / Size. Investors usually have a clear preference on startup stage. Many are excited to get in early as part of a pre-seed, seed or A-round. Others are more suited for A/B round and maybe C - this is usually the sweet spot for classic VC. And then for growth rounds - C, D, etc - you’re getting into private equity territory. Investors will usually be pretty clear about their preferred stage on their websites. Model. Sometimes there’s a preference for B2C, B2B, marketplace, subscription, D2C, SaaS, etc. Vertical. The first thing to look for here are investors who have a strong focus in your space. Many funds are focused exclusively on certain verticals like climate or fintech. That doesn’t mean other VCs aren’t interested in this - just make sure you go for the low-hanging fruit first. Special interests. Many funds have launched with the mission to bet on founders that have been historically underserved by VC. So, make sure you know whether a fund requires, for example, a female founder or a founder of color. Conflicts. If a VC just made an investment in a competitor of yours, they’re not going to invest in you (and you should want to stay away from that anyway). And it’s not just about finding VCs who will want to invest in you. You need to be thinking about what you want, too:
You’re marrying these people for 10 years of your life. -Mark Ghermezian
Where to look for investors.
Here's where to start!
Twitter. Ok (at least for the time being…) it’s still the water-cooler of the startup world. You’ll find out what VCs are interested in - what they’re talking about and what they’re doing. Crunchbase / AngelList Comparable startups’ investors Google searches! Just be sure to include searches for family offices, angels, public funds (like Empire State Development) or even private equity.
Charlie reminded the audience to understand what the investor is interested in now. They’ll tell you this by what they are writing in blogs, on twitter or via other preferred comms. What they’ve invested in in the past is looking backwards. It’s still valuable to know - but it’s incomplete.
Run this list like a sales pipeline. First step to success is to fill the top of the funnel with quality input: investors who are a fit on stage, vertical, model and any special interests. Everything else is a waste of time and might even reflect poorly on you.
Follow them! Find them on LInkedin and Twitter as early as possible. It’s good for your own due diligence and it’s a way to show you’re serious.
Cold outreach is *absolutely* ok! Susan said that BBG has invested in a couple companies who contacted them via hello@. It certainly beats a low quality intro from someone who doesn’t know you well or can’t recommend you with enthusiasm. Charlie doubled down on cold outreach and said he doesn’t care about a personal intro unless it comes from another investor.
The email content: Tell a good story about how you’re solving an important problem. Pack a punch. Be a good storyteller. You don’t have to write a novel, but investors get that 2-3 sentences won’t work either.
You have to be a good storyteller to raise capital. You own the stage for 30 minutes. Think hard about what you want to get across. - Susan Lyne, BBG Ventures
The Deck.Sure, you have to have a deck, but the deck is not the meeting. And it’s possible you won’t need to use it at all. Susan warned that founders “often start talking to the deck and you stop talking to the investor." She added "Better to be able to tell your story. Use a few slides if they really illustrate something.”
Get the vision across. Susan said “Create the big 10 year vision and then show where you’re gonna start.” She said there’s no problem in starting with a sliver of that. But don’t start with the sliver and wait till the last moment to say that this is part of a bigger vision. Charlie added that mapping out path to getting bigger - and that’s not the same as a two-product business.
Take charge! Be strategic! Charlie had some great tips for the meeting.
Just jump in. You know what points you need to get across. He said some people come in and defer to him on how the meeting should go "they ask if they should use their deck or what…” He said it’s going to a restaurant and someone hands you spaghetti in your hands.
Get them bought in. After you give some basic info, ask “Does this seem like the kind of thing you’re gonna do?” or “Are you open to being convinced of x, y and z things.” Get them to verbalize this.
Think like a politician at a press conference ... Answer the VC’s questions but make sure you get your talking points out there. Be able to always pivot back to the points you know you need to get across.
Founders need to know everything about their problem and market and speak intelligently about their competition.
What investors are looking for.
There are 1 of 2 reasons you’re getting the meeting. You’re a superstar or your problem is an awesome one. It’s often both. -Mark Ghermezian
Founder-market fit.Does the founder have lived experience, work experience or other special expertise in this area?
Recruiting potential.When Mark considers startups, he asks “Is this a founder who can attract incredible talent - like seasoned executives. And is this a founder growth execs will want to invest in in 5 years.”
Personal & professional compatibility. Susan said investors are taking the founders' temperature and asking themselves “do you want to spend time with them for 10 years. There needs to be a connection.”
Compelling problem or space.The VCs need to be excited about the space that you’re in and the size of the problem you’re solving.
Projections? Projections are a way to show you know what's going to drive your business and and that you have the discipline to look at those numbers on a regular basis. Susan said “The projections are never going to be where you come out. But the discipline of understanding the market you’re going after, what it’s going to cost you to reach them and what kind of conversion you think you can get … that’s critically important.”
A few process notes.
Due diligence. Assume at least 6-week cycle to closing beginning with the day you meet with a VC. They will do due diligence and it will take longer if you space or model is new-ish to their portfolio. Susan added that part of BBG’s diligence process is recreating the financial model for the business.
Getting to yes. Mark says getting 1 investor to say yes is often the turning point. Once one VC gives their stamp of approval, it’s easier to get others to follow.
Term sheet. One of your investors has to lead - that is, to write the term sheet. This is the VC that sets the valuation. Often VCs have a stated preference on whether they’ll lead or follow in raises.
How much to raise.
Take the money. If it's a reasonable valuation that won't crush you, don't leave it on the table. The stock market could tank tomorrow and everyone will get cold feet. -Charlie O’Donnell
The panelists advised against go out to the market telling investors your valuation - that the market will tell you that. But it’s not complicated to estimate where you will land.
Know what you need. The panelists agreed that you need to target at lest an 18mo runway but 24mo is smarter in this market.
You can approximate what you’ll get back from the market by asking founders around you and looking at comps in the market.
There is only a certain amount of equity that you’re going to be willing to give away at any moment. Hint: assume 20% for any seed+ found.
Remember you can change your mind on what you raise as you get feedback on how the market is valuing you.
Don’t focus on valuation - get the capital in hand and start building and growing. The founders who are focused on valuation are thinking about the wrong thing at the wrong time. -Mark Ghermezian
Truth time: Is venture capital the right choice for you?
Ask yoursellf 'Is this company that I’m building something that is going to align with the way venture capital thinks about investment?' You’ll be pushed to grow much faster than you might have thought about doing organically. - Susan Lyne
Venture capital comes with awesome advantages. You raise large quantities of money at one time and it often comes with smart investors who can advise you well on growth. You also get some clout from closing a round - so VC investment comes with a press and marketing bump.
The downside of VC investment? There’s the price of the equity or the potential control an outside party gains on the Board - but most entrepreneurs understand those well.
What many founders don’t fully understand are the implications of a “high risk / high reward” investment strategy. VCs are looking for massive returns from a wildly uncertain portfolio of early-stage companies. Do the math here - and put yourself in their shoes as they survey their portfolio.
Most startups fail. With or without VC funding, the nature of startups is that they mostly won’t work The one that works needs to cover the rest that failed. This is a little reductive - but you should imagine that the success threshold for your VC is getting to unicorn territory within 5-7 years. The rest of the portfolio founders are wonderful people, but their startups have little/no financial value to the investors anymore. If you’re not there or showing signs of getting there eventually, you’re probably going “sideways” or you’re a 0. A “0” to a VC is often not a “0” to a founder. And therein lies the rub. You might not have a rocketship, but you have something that can change your, your families’ and your employees’ lives. So 1) You might have to pass on exit opportunities that would put millions of dollars in your pocket but are still far too small for your investors to approve. And 2) once you’re on the VC path, even if you have a solid, profitable business … you will forever have a stack of equity on your back that you must clear before you see a dime. It’s not impossible - but practically speaking you should assume you will never be able to negotiate out of this equity. Founders must raise more money. There are two big reasons you’ll need to keep tapping back into the VC and eventually the private equity market. The first is that you need to be growing at a pace that necessitates more fuel; even if you’re profitable, your coffers should be deployed for growth. The second is that your investors need your value papered. Your VC and their LPs will not be making any money until a startup sells or IPOs (5+ years, at least), but they need to be able to show your growing value on their balance sheet - and your valuation in the next round is the way to do this.