How to approch a VC firm is pretty important. There are three aspects here: whom you approach, how you approach, and when you approach.
Whom to approach
At most VC firms, there is usually only one/maybe two people there that you really want to talk to. That would be the General Partner at the fund who invests in companies like yours.
VC firms usually uperate as partnerships. The General Partners of the firm (GPs) employ further support staff, some of which are on the investment side, such as Analysts, Associates, and Investment Managers, and some of which are further support staff.
The key to approaching a VC firm lies in understanding that the GPs will make a group decision as in which companies the fund will invest. Everybody else in the firm can and does influence decisions, but they don’t get to make them. The GPs of a fund will make that decision.
They key to getting VC investment lies in convincing one General Partner to support and lead your deal. It is then this partner’s job, with your strong support, to convince all other General Partners in the fund to invest in you.
Let’s use an example to illustrate how this would usually work. Let’s assume there is a VC fund with some 6 General Partners. One partner invests in mobile companies, two in semiconductors and IT system, and three in software and Internet services (this is not an unusual distribution). If you are a mobile (phone) related company, you probably need to convince the partner who makes these kind of investments to champion your deal. Once you have convinced that partner, he/she will then, over the period of due diligence, convince herself/himself and everybody else that this is the best deal he/she can champion this year. Your (now) champion will put forward the proposal to invest in you. Typically, all other GPs need to consent. Many firms operate on the basis that if one partner thinks it is a bad idea to do a deal, then it won’t happen. In any case, the only person in a fund who can actually convince ALL partners to agree to do the deal, is one of the General Partners. If you can’t convince that one partner, there will be no deal.
Going back to the list of VCs that you created initially, where you identified VC firms who actually have the ability to invest in you, you now need to identify the partner at each firm whom you need to convince. You need to pitch to that potential champion. Unfortunately, it isn’t quite as easy as this:
How to approach
For all the funds that you want to approach (based on whether they can invest in you and haven’t invested in a competitor, yet), note down the name of the relevant partner. The best way to connect to that partner is to get a personal introduction to that person. Scour your address book. See whom you know who might know that person. Chances are, if you get a personal introduction and if you have a well written teaser document, then you will get invited to pitch.
Pitching to Analysts, Associates, Managers, Venture Partners or GPs with a different focus is a great opportunity. They can give you an introduction to the partner(s) that matter to you. If you have to pitch to them to get to the GP in question, then take the opportunity, but if you do, don’t believe you have actually already pitched, yet. All you have achieved is getting on step closer to the GP that you really want to pitch to.
If you find it difficult to get in touch with VCs, you may want to bring somebody onboard either as an angel investor, or advisor/director who is well connected and who can make these introductions. Other ways are to attend many of the small (and free) networking events, where you can get to know people. There are also events specifically for VCs where you might sneak in (it is good fun). Many VCs blog, you can start talking to them online. Or you could get to meet them on online social networks.
There are many ways to get in touch. Ultimately, the route doesn’t matter. What matters is that you pitch to the right partner.
When to approach
There are two parts to this. First, remember that you had identified VC firms who don’t have any new funds, so can’t really invest in you, but still would like to see you pitch, so that they remain in the deal flow? Pitch as few of these first, say 2-3. The people there are no less smart than the guys at any of the other funds. They will flush out any problems that your pitch might have.
Once you have practiced and refined your pitch, it is time to approach your real prospects. I think it makes a lot of sense to line up the approach to all the VCs that you care about, and then to execute them simultaneously. I am no the only one thinking this, by the way. Approach all these investors at the same time. The reason for this is as follows: unless you do this, you won’t have several term sheets from interested investors at the same time. And unless you are in that position, you won’t be able to compare them. Comparing term sheets is important not so much for playing investors against one another (which is very hard to do unless you have been around for a long while), but it will tell you what your value in the market really is. It will also tell you which terms you won’t be able to negotiate away and which ones are really unusual or which ones are borderline (at that time in the market place). Once you receive a term sheet from an investor, you may have some two to three weeks to negotiate and decide whether to sign it or not. If you stagger your approach of VCs over several weeks or months, you are extremely unlikely to have multiple term sheets at the same time. This will disable you from understanding your market value and that will likely result in a deal that is less optimal then it could have been.
Pursue a number of well qualified VCs prospects you can manage simultaneously (say 10-20) and approach them all in the same week. Then take it from there.
- Identify the relevant partner(s) at a VC firm
- Find various approaches to get introduced to these partner(s)
- What you want is to pitch to these partners. Nothing more, nothing less.
- Approach a small number of investors who can’t invest in you first and practise and refine your pitch.
- Approach a solid number of well qualified prospective partners simultaneously, so you get to term sheet stage simultaneously. Do not stagger your approach.