Why it’s never too early to reach out to a VC
Friday, May 4, 2018/
The following scenario is taking place right now in startups across the country. It is common, real, and seems smart. I get it, but I want to take a moment to explain why it’s not.
You’re a founder. You’ve decided you want venture capital to fund the growth of your business. You’ve heard and read about how hard it is to raise, and you’re determined to be the one in 100 that gets funding. Your strategy is to wait for the perfect moment before you make contact. That moment when every metric is up and to the right, when your product is faultless, your customers all delighted, you’ve hit that key financial milestone, hired that superstar. (What VC could resist all that?)
Unfortunately, this fantasy scenario almost never takes place. Partly because life is never that perfect, so you risk waiting for a day that never comes. But there are much more important and practical reasons why this approach is inadvisable.
Nothing’s perfect forever — but that’s your time to show who you are
The only thing an investor knows for sure when they invest is that things are going to go wrong. Of the hundreds of decisions you make every day as a startup founder, you’ll get a bunch wrong (we all do). Some of those will have no discernible negative impact, some may be catastrophic. Or it may be circumstances outside of your control that cause a crisis or three along the way.
When a VC invests, one of the key traits we’re seeking is founders who will figure it out. Both the big and the small problems. Building the plane while flying it is hard and requires grit. If you come in for the first time and your pitch is that everything’s perfect, that’s fantastic. It’s also very rare and, more importantly, it doesn’t give us an insight into your founding team’s characters and determination, problem-solving and fast thinking.
So if all we get to see is when things are going great, we don’t know how you’ll face the tough times.
Dashes, not dots — your trajectory is more important than last quarter’s results
Nearly 10 years ago, one of our favourite US investors, Mark Suster, wrote about investing in lines, not dots. It’s worth a read, but the TL;DR is each time we meet or hear from you, this creates a data point (a dot) and over time these dots join together to form a line.
Your company’s trajectory is more important than any single point, so where you’ve come from is as important as where you’re going. Invest the time to give your target investors as many data points as possible. Starting early gives you the maximum opportunity to create as many positive, momentum-building meetings or updates as possible.
It’s a people business
One of the greatest myths about this technology world is that it’s all about the product. The product is king, no question. But people have to build that product. People have to sell that product, or at least define and execute on a go-to-market strategy that brings people to it, who will keep using it, as well as a plan to extend the roadmap.
While analogies comparing VC investment to marriage are a little tiresome, it is true that great relationships aren’t forged immediately — sometimes first impressions last, but sometimes people are not exactly who they seem. Taking a little bit of time to get to know each other gives an opportunity to see true values and authentic behaviours.
It’s a two-way street
Investors often (too often) say no because they don’t have enough insight into you and your business. And you should do exactly the same right back to investors. Be picky, be careful, do more than research, spend time with your potential investors. It can be hard to get in front of investors sometimes, but if they’re keen you should be able to organise enough meetings or work alongside one another to be confident in the connection. Test their advice, follow up the introductions, stress test the claims and the personalities.
So what should you do?
With most VCs now investing very early, it’s easier than ever to get meetings with potential investors. For some (like rampersand) our details are on the website, just drop us a line. For others, you have to go through a warm introduction.
Either way, get rid of the “perfect moment fantasy” and start building relationships early. Bottom line: If you spend a little bit of time early and ongoing, you can save yourself a lot of time (and pain) later on. Things will never be perfect, but that doesn’t mean you won’t find a perfect investor relationship.