If your VC meeting feels like it went well, it really didn’t…

“So how do you think your meeting went?”

“Oh, it went really well!”

This is a typical conversation I’ll have with a portfolio founder about his/her meeting with another seed venture capitalist (VC).

One thing I’ve noticed in the short time that I’ve been doing this job is that conversations with VCs that feel like they’re going well typically are not.  What happens next is the VC lobs the founder an email saying something like, “We’ve decided this is out of our wheelhouse.  Thanks for meeting.”  And that’s it.  The founder is confused and then frustrated.

What’s going on?  Why is it so hard to discern whether a VC meeting is going well?  A few thoughts…

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Originally posted by gamerzlove

1. VCs will ask you hard questions if he/she is really interested in your business

A VC’s job is to turn over every stone in your business.  Because he/she is investing other people’s money, this is really, really important.  This means that, by definition, there will be lots of difficult questions if the VC is doing his/her job.  The flip-side is also true. If I’ve already decided to pass, I won’t even go down the path of asking difficult questions (or even ask a lot of questions) because there are enough red flags to cut the conversation short.

In fact, the easiest conversations with entrepreneurs are with the ones I’ve already decided to pass on.  

I do understand this also leads to frustration. After a VC passes, entrepreneurs are often left thinking that he/she didn’t get a fair shake down with a lot of questions.  “She didn’t even ask me about the team or ask to see the product!” is what I’ll often hear.

I get the frustration.

This is where that comes from. Commonly, VCs will cut a conversation short for a few reasons:

  • Your company is too early
  • Your market seems too small
  • You or your co-founder do not seem sharp or tenacious
  • The VC doesn’t like you or your co-founder
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Originally posted by failworldblog

Stage

Your stage is probably the biggest reason VCs will pass quickly.  A lot of VCs have a sweet spot, in terms of traction stage, that they are investing in.  It’s part of their thesis or model.  If you don’t fit that right now, it’s not worth wasting time – including your own – to continue the conversation at this time.  However, you should know that a pass now is not a pass forever;  you should definitely go back when you have more progress.

A lot of VCs will try to tell you that they don’t have a sweet spot stage because they don’t want to miss any deals.  They would much rather see you too early than too late.  Truth be told, if you look at anyone’s portfolio, there are always tons of exceptions.  A VC who claims to look for a fair bit of traction will often have pre-launch companies in his/her portfolio.  That being said, a VC can quickly assess per your space and your idea whether it’s worth considering right now, and this is why conversations may end quickly.

Market size

If a VC is passing because your market size is seemingly too small, you can often change his/her mind about the market.

Tenacity

Early stage investors make a lot of decisions based on the founder of a startup.  This works to some people’s benefit and not to other’s.  If a VC sizes you up and has decided that you wouldn’t be a strong CEO, then that’s a pass for now as well.  How VCs determine who are “awesome founders” is a much longer discussion – there are certainly inherent, unconscious biases that we need to work on in this industry – but the bottom line is that you, as a founder, have to roll with the punches even if life is unfair.  The best way to prove you are an awesome founder is by making progress on your business and continuing to knock on those same investors’ doors to show your progress.  That is what truly makes for an awesome founder – someone who can get stuff done.

Bad impressions

Lastly, a VC would cut a meeting short if he/she doesn’t like the founder.  To be honest, if you are meeting an investor for the first time, you would think it would be very difficult to leave a bad impression on just one meeting.  To my surprise, there are actually a lot of entrepreneurs who do not pass this bar.  I will automatically pass if you:

  • Lie, cheat, or do something unethical
  • Treat my team (or your team!) rudely, meanly, or in an entitled way
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Originally posted by sir-maximillian-goof

This may sound obvious, but if we are going to start a relationship, there needs to be strong trust; I need to know that you are a decent human being.  How you treat other people on my team is a proxy for how you’ll treat your own team (read: morale issues and drama), and of course, unethical people cannot be trusted.

Not only will I automatically pass today for these reasons, but I will also pass every single time for your subsequent businesses.

2. Conversations with angels can be easier

All of this said, conversations with angel investors can be very different.  Angel investors invest their own money and can decide to invest for whatever reason.  They can invest simply because they like your logo.  They may not turn over every stone.  So, you’ll see much more variation in your conversations with angel investors depending on the individual angel.

In closing, part of the problem with all of this is that you often won’t know why a VC is passing.  You should definitely ask, and if the issue is around stage of your company or market, investors are usually pretty open about telling you that. If they are not able to give you more specific feedback, by process of elimination, there is likely something negative that he/she thinks about you or your co-founder.

The ideal email deck

Since I wrote a post on how you’ll need multiple pitch decks, I’ve gotten a number of questions around what should go into them.

Today I want to spell out the ideal email deck – at least, ideal if you’re sending it to me. 🙂

  • Short & sweet
    • ~5 slides is sufficient
  • Should be skimmable in 10-30 seconds; E.g.
    • Fonts / colors that are easy to read
    • Not too much text / content
  • Include your contact info

The purpose of your email deck is just to get a meeting.  It’s not to try to convince me that I should invest.  That comes later.

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Originally posted by lostforever-x-losttogether

What should go into your 5 slides?

Your email deck should cover the basics.  There isn’t a hard-and-fast rule around what “the basics” means. For most companies, it will cover something like this (not necessarily in this order):

  • Problem
  • Solution / Your Product
  • Traction / Your Unit Metrics
  • Team
  • Market

Problem

Interestingly, most people glance over this slide.  Of all the slides, this is the one that is probably the most important to address and spend the most time on.

How you articulate the problem accomplishes a few things:

  • It gets me excited about your opportunity
  • It gives me a sense of how much you’ve thought about the problem and know what you’re talking about
  • It gives me a sense of your communication skills – your ability to articulate something complex into just 1-2 simple sentences

For example, one of 500 Startups’ portfolio companies called EnvoyNow does on-demand food delivery to the college market.  Just when you thought you could not possibly invest in yet another on-demand food delivery company, they convincingly articulated the problem.  Simply: College students order a LOT of food, but existing on-demand delivery companies cannot locate and/or access on-campus locations including dormitories and specific buildings.

Their articulation of the problem not only is very specific and easy-to-grasp, but it also addresses the elephant in the room: there are so many existing on-demand food delivery companies – why would you need another one?

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Originally posted by theweekmagazine

Solution

I see too many companies attempt to address all their features with this slide. Just make it simple.  Follow the user experience.  Step 1, step 2, step 3, voila!

Traction

Most companies who send me decks don’t include a traction slide.  I think it’s because people are embarrassed that they are not very far along or they actually haven’t yet tested the waters.

First off, there’s nothing to be embarrassed by.  I’m a seed investor – what would I expect?  Any investor who is investing at the seed stage needs to be comfortable with the fact that there’s really not a whole lot of data at this stage, and if seed investors are not cool with this, they really should not be playing at this level.

Secondly, I think it’s important to understand what investors are looking for in this slide.  I’m not looking for traction for traction-sake.  Every company at this stage – regardless of whether they made $1k last month or $100k last month – is early and far far far away from being a billion dollar business.  So, what I want to understand are your customer learnings.  

If you are super duper early and don’t have meaningful revenue, show me what you’ve learned by testing the market.  This is something that EVERY company should be able to do quickly even without a product.

  • What customer acquisition channels did you test?
    • Ads?
    • Cross-promotions?
  • What was the cost to
    • Get a signup?
    • Get a free user?
    • Get a paying user?
  • What has the retention been so far (if you know)?
  • What is the engagement?
    • Are people coming back everyday?
      • For how long?
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Originally posted by illuminatikiller

If you don’t have a lot of information, at a minimum, you can tell me about your unit economics.  What is happening with the few customers or signups you do have?  What do those numbers look like right now?

At a bare bare bare minimum, everyone can create a coming-soon landing page and drive traffic to it and articulate the results for that.  The traction slide needs to give me some idea that this is a product that people want and more importantly how badly.

If you are a post-seed company and you have quite a bit of data, graph your revenue (or users if you’re a pure-consumer company).

Note: please don’t graph cumulative revenue – this is a noob mistake!  I understand that your numbers may not go up every month.  In some cases, the time period of “months” may not make sense and you should slice and dice your data differently.  For example, if you’re an adtech company, perhaps it might make sense to graph your results by quarter since budgets are on a quarterly basis for most ad buyers.

Tl;dr – tout your unit metrics.  If you’re a post-seed company, I also want to see your data over time.

Team

You don’t need to list your whole team.  Just the founders is sufficient.  List only your notable advisors.  If you/your co-founders have domain experience, definitely mention this on this slide.  Also list out key accomplishments.  This slide is fairly straight forward.

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Originally posted by robertsdowneystark

Market

For your market slide, you don’t need to do a crazy analysis on this slide.  In fact, I would be ok with a slide with just one big number in the middle in size 108 font.   E.g. “$5B market”.  For me, I also don’t need it to be a $$$ number per se.  It could be something like, “2B people suffer from X”.  I just need to get a sense that this could be worth a lot AND GET CONVICTION.

If you are finding that investors do not have conviction about your market and are not open to meeting, you may need to re-position the problem (hence why that problem slide is so important) or find different investors to approach.

Lastly, in addition to these 5 slides, you’ll also want to make sure your contact information is on the slides.  Decks do get forwarded around.  For example, if let’s say someone sends me a deck for a fintech deal, I’m going to defer to one of my colleagues who specializes in that.  You’ll want to make sure there’s a way for him to get in touch with you.

When is the best time to pitch an investor?

I was moderating a VC panel a couple of weeks back, and we talked about the best way to get an investor’s attention.  One of the panelists said, “Well, the worst way is to bombard me at an event.”  And the more I thought about it, the more I disagreed.

When I was an entrepreneur, I don’t think I had any sense just how busy most investors are.  I guess I just thought they all sit in cushy chairs all day and sip tea and hang out at the Rosewood on Sand Hill  (ok, maybe some investors do).

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Originally posted by gameraboy

But certainly new VCs are not doing this.  They have to hustle for every deal.  They have to hustle to fundraise for their current or next fund.  So how do you get on an investor’s radar?

Here’s a snapshot of my day-in-a-life:

  • I average 6-10 meetings per day (typically 20-30 min mtgs), including meetings with both current and future portfolio companies
  • I block off 4+ hours a day for emailing with founders
  • I do roadshow events or speak at conferences on average 2-5 days per month on the road, 1 day locally
  • Right now, my work inbox has
    • 80 import ant unanswered emails
    • 276 back-and-forth email threads with prospective founders
    • 1500+ emails that will just never even get opened because the subject line isn’t interesting
    • My personal inbox isn’t any better, unfortunately

This isn’t to say, “Oh I’m so busy that I’m holier or more important than thou.”  I’m trying to paint a picture of which channels are too competitive to get attention and which channels have opportunities.  I imagine that this is similar for many other investors.

Based off this, if I were pitching myself, here are some takeaways:

1. The best place to pitch an investor is when there is unstructured time

If you are at a conference or an event, investors actually have a LOT of downtime.  They have blocked off time on their calendars to be at an event for x amount of time.  But aside from their speaking slot or panel or whatnot, they are more or less available!

Now, a lot of investors don’t stay for the whole event, but if they are speaking, you can bet they will show up for at least that part.  You have the opportunity to find them before or after their talks.  Have you ever seen an investor on his/her phone emailing or texting people in the corner of a room?  That is your opportunity to jump in and do an elevator pitch.  Be polite and friendly, and you won’t be interrupting.

A strong elevator pitch will cover something unique about you, your story, any KPIs or metrics you may have, and why what you’re doing is important.  Most elevator pitches are really weak.  In part, it’s because they all sound the same and often are too long or rambly.  Also, an elevator pitch does not mean you just talk at someone.  An elevator pitch is a dialogue, but it’s a short one where you need to cover enough interesting points in order to get a meeting.  If the investor is intrigued, you may end up having a much longer conversation at the conference itself.  My longest conversations with entrepreneurs have been at events, and many of the portfolio companies I’ve championed over the last two years have been startups I’ve met at events.

Make sure that there is a strong next step after meeting with an investor.  A weak next step is “Email me.”  You don’t want to end up in someone’s inbox.  A strong next step is a confirmed meeting — it could be at a specific time at the event itself or later on — and it should be locked down or, at least, you should be in touch with an investor’s EA.

2. Cutting through an email inbox is tough

Everyone’s inboxes are busy.  If you must go the email-route, here’s how.

In some ways, this is why people say strong referrals are a great way to meet with investors.  This is true — if the referral is really strong.  Most of the time, referrals are weak or are just OK.  For example, people I’ve met once or twice before do not make good referrals for me.  You’re much better off emailing cold.  Furthermore, there are even some people’s referrals who are negative signaling to me!  On the flip side, there are some fellow investors’ referrals I would hop on immediately.  The issue, as an entrepreneur, is that you don’t know where your mutual connection sits in an investor’s eyes.  Your referrer doesn’t know where he/she stands either.

The best thing you can do is to try to get a warm referral but in parallel, send a cold-email.  It won’t hurt.  Sending someone an email twice isn’t going to be weird.  I probably wouldn’t even notice if someone emailed me 3x.

If you cold-email an investor, whatever you do, that first email must be compelling enough to be moved into a concrete meeting slot.  Asking someone for 15 minutes of his/her time while providing zero context on your business is a good way to get archived immediately.  Why?  Because even though it seems like it’s just 15 minutes of time for a call, that’s what — I kid you not — thousands of other entrepreneurs are asking for at the exact same time.

3. Make the most of whatever structured time you have

Once you have a concrete meeting time, no matter how short, you must have a pitch that is appropriate for that time period.  Most of my first structured meetings with people are 20 minutes.  This is pretty short. A lot of people try to push for longer meetings.  No matter how much time you have, you should have a pitch that can fit that time slot.  You should have pitches for:

  • 30 seconds
  • 5 minutes
  • 20 minutes
  • 45 minutes

The goals for each of these blocks are obviously very different.  You’re not going to get investment dollars on a 30-second pitch.  The 30-second pitch is to gauge if it’s worthwhile to move you to a longer pitch.

Similarly, I favor 20-minute conversations as a starting point because it’s enough time for a concise, direct entrepreneur to outline the following information:

  • Team backgrounds and mission (why they are doing this)
  • The problem they are solving
  • Brief solution + differentiation
  • Notable KPIs
  • High level unit metrics

The best entrepreneurs I’ve met can cover all of this and more in 20 minutes and still have time to spare.  They have thought deeply about what points are important and made sure to cover all of those points while avoiding long, meaningless tangents.

This means that you’ll need to pace the conversation accordingly.  If 10 minutes have gone by in a 20 minute meeting and we’ve only talked about your team, that is not good.  You must drive the conversation to cover everything you want us to cover — i.e., whatever is needed to push me to the next step — in whatever allotted time.  We won’t be able to schedule another time  to cover anything we missed unless that first meeting is compelling enough.  As an entrepreneur, it’s your job to cover everything that is compelling to get to that next step.

By the time the call is over, you should know concretely what the next steps are.  If you don’t, make sure to ask and push.

How to close investors

Your round isn’t anywhere near closed unless you have enough investors who are very serious about investing.  However, it can often be difficult to figure out if an investor is actually serious about investing or just being positive about your business.  So how can you tell who is actually serious and who isn’t?

Signals to look for:

  • For VCs, you’ve had at least a couple of meetings with the firm, including the decision maker / makers
  • For everyone, you’ve discussed details of the round — e.g. how much you’re raising, what the money will be used for, and even potential valuation / terms of the round; If you are talking to angels about your company, they may not even realize you are trying to raise money from them unless you explicitly mention your round!

You will need enough serious investors to even start to close your round.  How many are enough?  The pipeline value of this serious investor group overall should be at least 2x the dollar amount you’re looking to raise.  In other words, say you’re looking to close $500k, you will need enough serious investors such that should they all invest, they would invest approximately $1m in aggregate.

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Originally posted by yourreactiongifs

Next, you need to create strong urgency with this group of people.  Founders will often create urgency the wrong way by saying nebulous things like, “We have all this interest.”  Or “We’re closing our round really soon.” But these types of statements are not only not credible, but they also signal you have no idea what you’re doing…

There are several ways to create strong urgency – here are a few:

1) Have a firm deadline you can and will commit to  

This is often easiest if there is a particular event coming up — such as a Demo Day or a pitch event / press event.  “We are closing a tranche of funding on X date, which is our Demo Day.  After that, the price will go up.  So if you are serious about investing now, then let’s talk in the next 48 hours.”  Then, tell all investors you’ve been talking with about this deadline — both the serious and non-serious — and see who talks w/ you in the next 48 hours and ultimately comes into your round.

2) Tell all potential investors how much money is in your investor pipeline 

If all of your serious investors were to invest, how much would this pipeline be worth?  (As mentioned above, it should be at least 2x…but ideally more).  Then tell all investors you’ve been talking with — both the serious and non-serious — that you are closing off your round soon, because at this point you have about $X in your investor pipeline but are only raising $Y.  And so if people are serious about coming into your round now, you’ll need to talk in the next 48 hours.

3) Tell all potential VCs about where your conversations stand with other VCs

If you are going into second round / later stage meetings with VCs, make sure all the VCs you’re talking to know this.  “I have 4 second round meetings this week with other VCs on Sand Hill. Things are moving a bit faster than I’d originally thought, so if you think it makes sense, let’s get a meeting scheduled this week.”  Keep putting pressure to shuttle your VC fundraising process along with all the firms you are talking with.  Once you get terms — either verbal or bulleted in email — then tell all VCs that you are now talking specific terms with another VC and that you’re trying to figure out who is potentially in this round and who is out.  Once you get a term sheet, tell everyone that you have a term sheet and that you are trying to figure out which firm(s) make(s) the most sense to move forward with.  Every step of progress you make with a VC should be something you tell all the other VCs about so you keep moving all processes forward.

DO NOT TELL PEOPLE WHICH VCs you are talking with!  You don’t want VCs talking to each other behind your back and then either colluding on price or talking themselves out of your deal altogether.  You want them to think independently.

Also, if you get a term sheet with a valuation that is much lower than you’d hoped / anticipated, this is not the end of the world.  Just getting any term sheet at all is a GREAT starting point.  Valuations are the result of supply and demand — not based on your progress / revenue.  Once you get a term sheet, you should focus on getting other term sheets so that the terms can get bid up and so you can have other VC options.  On the flip side, a lot of entrepreneurs overly focus on valuation — you don’t don’t want to set your valuation too high (because it can bite you in the next round), and ultimately, you want to work with investors who are right for you, so make sure the relationship(s) is/are right with the VC(s) you ultimately go with.

Now, for all of these tactics, a big risk is that no one commits to your round at all and it completely falls apart!  But you have to take that risk.  This is why it’s so important to have enough serious investors in pipeline in order to keep moving your fundraising process forward — investors WILL drop out either because they weren’t serious in the first place or they can’t move fast enough or they don’t like the details of the round.  And you need to be ok with that.  If you don’t have enough serious investors in your pipeline, you either need to have more first meetings with new prospective investors or re-evaluate whether you should be raising money right now.  Often it’s a better use of time to stop fundraising and then go back out and raise money later when you have a better story to tell.

Always be pitching

The old adage of “Always be selling” definitely applies to fundraising.  One of the things I didn’t realize as an entrepreneur was that at the seed stage, anyone could potentially be an investor.  A lot of entrepreneurs just think to pitch to VCs, well-known angel investors, or people who have signaled they are angels on Angelist.  The reality is that angel investors can be anybody, especially these days, now that non-accredited investors can invest much more freely.  Angel investors can be people without a tech background: doctors, lawyers, bankers, engineers, etc.  They can even be your users and customers; for example, The Hustle raised $300k from its readers in 50 hours.

You no longer need to be super rich or write big checks to be an angel investor. In fact, many angel investors in Silicon Valley are not!  I have friends who save $10k a year just to angel invest $1,000 in 10 companies per year via syndicates on websites such as AngelList.  For them, they see this activity as an investment.  They invest in startups much like they invest in index funds on the public markets by putting a little bit of money into many different companies.  Many “regular” people invest in large diverse portfolios as part of their retirement savings strategy.

Furthermore, angel investors also see this as an investment in themselves.  Often, being an angel investor – no matter how much money you are investing – is a great way to network.  You have the opportunity to meet and get to know other investors in your portfolio companies.  Investing in big index funds, while a good retirement strategy, doesn’t allow you to meet other investors in those funds.  But investing $1k into a startup can often get you an invite to free VIP events that that startup throws for its investors.

Saving $10k+ per year to invest in startups, while not possible for everyone, is within reach for a lot of middle class and upper-middle class people who are interested in investing in their retirement.  As a startup, there’s a huge audience to pitch to — just about anyone who is doing just fine in life can be your angel investor.

But most people who save $10k+ for their retirement per year don’t advertise that they are angel investors.  They don’t have a website talking about a fund or their investments.  They don’t signal they angel invest.  So, it’s hard to tell who might be interested in potentially angel investing in your deal.  This is why it’s really important to hone your elevator pitch and constantly get other people excited about what you’re doing in case people you meet are angel investors or know investors who might be excited to invest in you and your company.

Always be pitching.

11 Fundraising Secrets from 1600 Startups: My SaaStr talk

Last week, I had a great time at SaaStr, a conference dedicated to all things SaaS. Thanks to Jason Lemkin for inviting me to speak on fundraising there.  With 10k+ attendees ranging from startups to large enterprise SaaS companies, SaaStr had impressive content for everyone and great networking opportunities.  (As an aside, the other SaaS conference you should attend is called SaaStock in Ireland.)

My talk was focused on walking entrepreneurs through how investors think about their portfolios and how founders can use this information to his/her advantage to raise money.

See slides below: