Monday, January 16, 2006

Setting VC Meetings: Introduction

In Silicon Valley there are many myths about venture capital. One such myth is the ease with which money can be raised from the venture capitalists. This myth has been feuled by a small number of well publicized poor investments that were made during the Internet bubble and the perception of irrational herding behavior among investors around "hot" technology. I believe the myth of easy money on Sand Hill Road is further propelled by industry outsiders who've never actually tried to raise money. My own experience suggests that, with the exception of rock star CEOs, the process of raising capital is difficult. In fact, for many first time entrepreneurs (like myself), just getting a meeting with an investor can be a challenge and few entrepreneurs have the networks required to set multiple appointments. This blog series is an attempt to share how I’ve been able to build the network that I am now leveraging successfully to set appointment with investors.

In setting appointments there are two primary challenges. The first problem is providing the investors with compelling material that convinces them to sit down with you. The second more difficult problem is getting the investors to read it. The tools that an entrepreneur needs to set an appointment with an investor are the elevator pitch and the executive summary. Getting the investor to read or listen to the material is really only accomplished by making a personal connection or getting an introduction. Both of these problems are exacerbated by attempting to contact inappropriate investors. Entrepreneurs should ensure that the investors they approach meet these three criteria before attempting to set any meetings. First make sure the investor invests in your industry. For example Hummer Winblad is a software investor and they do not invest in chips or biotech. Second, make sure the investor invests at your stage. LeapFrog Ventures is an early stage investor and they don't particpate in series C financing rounds. Lastly and most importantly, make sure that the investor you are approaching does not have any competitive investments. Ethical investors won't meet with companies that are competitive with their current portfolio companies. However, less ethical investors will gladly meet with you and then share your business plan and secret sauce with their portfolio companies.

First and foremost, setting appointments with investors is more about networking and less about having a great product. Ultimately, you will need a great product to get funded but I have been told that last year zero companies were funded by VCs without an introduction or personal connection. That means that submitting a summary or business plan via a VC’s website is virtually worthless. Privately numerous VCs attest to this. Rather than bemoaning the 'old boys club', I suggest that entrepreneurs accept that they are going to have to dedicate several hours per week to setting appointments. If you need money to grow your business, not even the best products will get funded if no VCs are talking to you.

2 Comments:

At April 18, 2006 9:49 PM, Anonymous Dharmesh Shah said...

Great post. I agree with your position that raising VC is much harder than some might lead you to believe.

However, I would also suggest that the myth of the "unethical VC" is similarly misguided. Though I'm sure they exist, I think it's very rare for a VC to intentionally act unethically to benefit their portfolio companies. The VC business is a relationship business and lives in a very small community. The risk of being labelled as "unethical" is simply not wortht the possible incremental gain. Most VCs I've ever met are too smart to fall into this trap.

 
At April 18, 2006 10:01 PM, Blogger Andrew Fife said...

Dharmesh:
yes, my expereinces concur that there are not many unethical VCs. However, I have had a couple ask for exec summarys when they clearly have competitive portfolio companies. Nonetheless, the point is really that entrepreneurs should do their homework on the VC before approaching them because pitching to VCs with competitive investments is a waste of everyone's time.

 

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