You've never run a company or raised money before. Sure, you've built little projects and there was that lemonade stand when you were little, but this is for real. Real money is showing up at your door and you're in the enviable position of getting to choose who you work with.
Even if you haven't gotten offers yet, your time is valuable and you can't pitch everyone. You feel like you have a decent shot of successfully raising, so you want to prioritize who to pitch to first.
Here are five things you should consider when selecting which VCs to take on, and who to pitch in the first place:
1) Work with people who focus on early rounds. Some bigger funds write lots of small checks and are great at it, others do it just as an exception. My belief is that the more you do something, you get better at it, and you want to get known to be good at what you do the most. If you slack on a seed deal and you rarely do seed, it's not a big deal, but to a pure seed investor, it's going to be of great importance. The early stage comes with its own unique set of challenges, so you'll want someone who specializes on them.
2) The earlier you are, the closer you want your investors. It's fine to have a few investors in your round who aren't local, but you should have some anchors in your own city. In my career, I've done 19 investments in NYC and 1 in Boston, and I'll admit that I felt like I couldn't help the Boston company nearly as much. Phone calls were no substitute for in person and when it came to hiring, my network simply wasn't as big up there as it was here.
3) Talk to entrepreneurs they've backed before to see who really adds value. There's a big difference in terms of impact between two investors in the same round. Some investors really roll up their sleeves and others disappear after writing the check. A lot of people market their value-add, but if you talk to multiple people that the investor is back, you'll get the real story.
4) Talk to investors who are decisive. The best answer is a yes, and the second best answer is a quick no. Your time is money, literally, and you can't afford to be messing around with someone who can't commit after tons of back and forth and meeting after meeting. Sometimes, it's a function of process. Single GP funds like mine or Highline run by Shana Fisher don't need to wait for a team meeting to say yes. You're totally within your right to ask about process even in the first meeting.
5) Who helps you before a yes. When you pitch, tell a firm how they can be helpful. Maybe it's an intro to a customer or maybe it's helping you work through a particular issue. Either way, I'm a big fan of givers--people who offer something before they get something back in return. VC is a service industry and the best investors are always looking for ways to help.
6) Find someone who is willing to tell you what you need to hear or ask the tough questions. Your first year is filled with lots of pitfalls and rabbitholes. A great early investor shouldn't tell you want to do, but they should be willing to ask tough questions. Sometimes, a timely, "Should we really be doing this?" can make all the difference, especially when you don't have a lot of money to waste.
7) Who can help you recruit? Hiring great people is the most important thing you'll do early on--and you'll need all the help with that you can get. Ask investors about how they've helped companies with their recruiting. It's not something all investors do, but I think it should be a core skill given its importance to a company.
8) Find a lead. Getting a round going requires someone willing to say yes before everyone else does, and risk social capital by telling others they're in. "This could be a stupid idea, but I'm in and you should be, too!" Lots of investors are willing to pile on, but you should start off by pitching true leads. Ask investors for situations where they were the first yes and helped make a round happen with their intros.
9) Pick someone you can get along with. Life's too short for assholes, and unfortunately, there are a lot of them who write checks.
How did you pick who to pitch? Who did you decide to take? Did you make any mistakes? I'd love to hear other criteria for your first round.
These days, there are a ton of options for you if you're a startup seeking guidence. Every single topic about running a company has been written about ad nauseum, there are incubators, accelorators, mentoring programs, events, talks, etc. We've done a lot to make sure startups get all the help we can get--and it's leading to higher companies getting off the ground.
But what about investors? How are we supposed to get better?
Not every potentially good VC previously worked for Fred Wilson and Josh Kopelman. Not every VC used to get pitched by VC funds for a living and has seen hundreds and hundreds of VC pitch decks. Yet, even I wished I had more guidance when I was first starting out.
Venture capitalists play an important role in burgeoning ecosystems. They cross pollinate ideas--meeting with lots of different types of stakeholders. They're the only ones whose job it is to meet with the founders, lawyers, technologists, corp dev folks, media, professors, and talent all at the some time, not just to look for deal flow but to improve the quality of the ecosystem these companies are going into. Their guidance and network can also make these companies better. So if you want to make better ecosystems, and better startups, doesn't it stand to reason that you could help the situation by making better VCs?
So what about a Techstars-like program for new VCs? I'd love to be able to have Jim Breyer as my accelorator mentor now that has stepped away from the Accel day to day. In fact, there are lots of VC partners that are winding down their roles that have had very successful careers--where is their knowledge going? How can we leverage them to help create the next generation of VCs?
I'd love to be part of a program where the best VCs come in and share their knowledge on how they did their jobs and lessons learned. In particular, I'm always trying to improve as a board member, but their aren't any programs or classes for that.
Just like a startup accelorator, a VC program would also really help on the fundraising side. There are lots of people who like working with VCs when they're small and still hungry to build up a name for themselves. Aggregating these types of fund investors would make fundraising a lot easier. Maybe the program could even have a funding basket--they'll get you your first million bucks in your first $7mm fund. In all liklihood, if you doled out a few million to first time funds that were being mentored by the best in the business, I'd venture to say your return might be pretty darn good. You certainly wouldn't lose too much of your money, since these are diversified pools.
A program like these could help you work on your strategy and help get you up and running quickly on shared backend tools as well.
I certainly would have signed up for it. I still would. There are a few programs out there like Kaufmann and InSite that get you exposure to the VC world through mentorship, but you join those programs and go work for other people. What I'm talking about is how to get mentorship to launch and run my own fund.
All of these people in my inbox who want to get into VC need to go raise $10mm of institutional capital to fund 10 VCs over the next two years in a VC accelorator program. It would be a great platform to get to know everyone in the business and learn the trade.
Here are two contrasting startup stories I've seen firsthand.
With one company, a founder and his super inspirational, creative, and established buddy hatch a plan to build a very strong content brand that serves as a platform for a lot of diverse revenue streams--events, ecommerce, advertising. You could think of it as a spin on Thrillist. With the author staying close as an advisor, they build a real, cashflow positive business and start to think about where they could go with some outside capital.
One of the big opportunities for them is audience development--driving event attendees to the content, events to the readers, and doing some low-hanging fruit upgrades to their social strategy. They find a kick ass, experienced content person to advise them for six months and help them build out a team around this.
The fundraising will be for that content team, additional developers, and salespeople to leverage the unique brand they've built. Nice, tight story that makes sense. I certainly would have wanted to be an angel investor in Thrillist at the time.
The second startup came to me from a founder of a company that I only found out later wasn't fulltime. The first pitch I got was from someone who didn't intend on staying with the business as an employee. It's actually the first time that's ever happened to me, so I honestly never thought to ask. Everyone I've ever gotten pitched from can't wait to quit their other jobs to work on what's being pitched. When I found out, I was super disappointed--not because this person was even the right person for the business--but because I liked the first person I met, and then had to mentally extract him from the story arc of this business.
That wasn't the only stumble in the business. The team told investors they were hiring a C-level employee, and, upon diligence, it turned out that the person didn't want the job. Not only that, but they actually took that potential hire to a fundraising meeting with a VC--a VC that was interviewing this candidate for another position the next day.
On top of all this, there's never been a really tight story about goals and resources around the funding--exactly what the next five hires will be, etc.
Here's the interesting thing:
It's the same company.
Neither one is a false account, but in the latter situation, the team pitched at an awkward moment and were super transparent about how the sausage was being made.
Every startup has been in flux at one point or another as to founder roles, key hires, and plans. Not everyone who has ever been around at the start of the company is the right person to move forward. These things are nothing new.
What you have to be careful of is how the story appears to investors. Are you hitting the fundraising trail at the right moment where you've got your plan together, team in place, and know where you're going?
Even if you pitch super early--it's totally fine to tell an investor you have some key open questions, and then come back when you've got them solved. That's often how relationships are being built.
It's that awkward middle phase--where you're trying out a bunch of stuff, seeing what sticks, that you want to be careful about story arc. Sometimes you meet an amazing person who has no intention of ever being fulltime on anything. You don't want to tell investors you're trying to get this person and then have to tell them you failed. Hiring a consultant who always intends to be a consultant isn't a failure. Maybe you thought you could snag them, but still, this person could be great for a short stint and a real plus for the company. How is that story being told? How is the story of how the founders are figuring out their roles being told?
I'm a big fan of transparency, but if you're going to go far and wide on a pitch, organizing your story is key. It's a bit like inviting friends to your apartment for the first time. We all know that our places can be in various states of disarray at times--but that doesn't mean that if you know you have guests, you shouldn't throw your dirty socks in the hamper and wipe off the counter.
I still feel like it's never too early to talk to an investor to get feedback, but before you do, think about how your company came together. Think about story arc. What's the truthful, transparent account of what's going on that shows our best times ahead of us. Otherwise, you're just starting a game of Jenga and asking an investor to take out the bottom piece.
I'm still very much in talks with this company, helping working through the story now that I know what's up--but I'll admit to experiencing some mental pain experiencing the story in mid-flux and development.
Greg Galant of Sawhorse coined a term yesterday that captures perfectly what I thought of my 8th SXSW. We were having a discussion about big brands taking over the scene and he called it "conference gentrification". That's exactly what has happened down in Austin. The small startups and individual creatives were early to SXSW and created a great, authentic experience over many years--a "neighborhood" if you will--with a certain attractive vibe.
Brands, in search of interestingness, flocked to SXSW in search of the next cool place to be, like young executives moving into the big glass luxury buildings on the Williamsburg waterfront. What was once the GroupMe Grill--a stunt to buy out a little food shack across from the convention center that gained conference-wide attention--has become the Citrix GoToMeeting grill. Deloitte had a booth in the convention center where Twitter flat screens once stood seven years ago before anyone knew about the startup service.
I might sound like I'm shaking my fist saying "Back in my day!" and "Get off my lawn!" but this isn't necessarily all a bad thing. It's just different. New York neighborhoods that experience growth and change may lose that authentic feel, but they gain much needed economic activity while crime tends to drop. SXSW has become a fun way for lots of brands to interact with startups and creatives--different but not the same.
Every conference has its own neighborhood. The Collision Conference, for example, sold out right away because it comes from the same folks that put on The Summit. Those conferences feel a lot like a planned suburban neighborhood. They have no long organic history, but everything is beautiful and setup exactly the way you want it. A park near a lake, a school, and a three car garage--complete with Bill Clinton, Elon Musk and Snoop on stage prognosticating the future of civilization.
Other conferences will always feel like Red Hook--out of the way and tough to completely gentrify because of a lack of public transportation. Those are the hacker and designer conferences and the Bar Camps--not easily accessible to the general public but quite worth going to.
I love Red Hook and I love conferences like that. I'm looking for more. I want to spend more time with people who aren't big names where everything at the conference isn't perfect. I met Raul from Tinybop at the first Brooklyn Beta--a community run conference that had two investors and 148 designers, devs and creatives in attendance. Like the stereotypical white dude that has little interest in living next to other boring white people I'm the VC that wants to find out where the other VCs aren't.
I'm fully aware that makes me the conference gentrifier, but my hope is that where I go can stay under the radar for at least a little while before my kind changes things.
About seven years ago, I wrote a post on breaking into venture capital and I continue to point the five or six people a week who ask me how to break into venture.
Today, I want to add two addendum to it, based on the work of two up and coming women in the NYC tech community.
Yesterday, Amrit Richmond announced her new employment at RRE as Director of Community & Platform. The key to her getting the job was that she had essentially started doing the job long before it ever got announced. She had been running social media part time for a smaller fund and had built up a following with her own tech newsletter. No one was paying her to write the newsletter, but most of the team at RRE was already on it.
When Amrit was applying, I told her she was a lock for the job. When she asked why, I said it was because if anyone was better qualified, we'd already know about them by now. The candidates for venture capital roles are already out there and usually in plain sight and there simply wasn't anyone out there doing what Amrit was doing who wasn't already fulltime at a firm.
Another case in point, Spark Capital just hired Kate Bolin--someone that had been interviewed at a portfolio company of theirs that had made a good enough impression that they labeled her as someone to stay in touch with.
If you need to introduce yourself to a VC firm, you're probably not getting the job.
The opportunities, however, are different than they used to be. At the early stage, the ranks of the non-partner investor are disappearing. VC firms are going back to being mostly partner driven shops, where dealflow and decisions stay up top. They are, however, staffing up with specialists. Like lefties out of the bullpen, VC firms now have recruiting partners, pr and marketing experts, technologists-in-residents--and USV even has an on board activist. If you can't walk into a firm and tout a specific skill that is a benefit to portfolio companies, you're going to have a very tough time getting in.
And no, analyzing startups is not a portfolio company benefit. That's a benefit to the VC firm. To the company, as a recently minted MBA with no startup experience who wants to run the 4th year numbers, you're just a pain in the ass.
One thing that I see too many people moving from the finance world doing, both in attempts to get into VC and to startups, is relinquishing the resources they have at their old job. They can't wait to get out of their bank or consulting firm, but they forget that they have connections to something that startups want desperately--money. If you want to break into the startup world and you come from investment banking, don't forget the one thing that your resume says that actually speaks to entrepreneurs--you know potential investors.
Christina Bechhold didn't forget that--and so she co-founded her own angel group. It's a group of her peers from the professional world--up and coming titans of finance and consulting with good salaries and not a lot of dependents. She and her co-founder Graham Gullans went around to all the other early stage investors in NYC to learn best practices, and present themselves as a good potential co-investor. There's really no easier way to get into venture than to find some money, reach out to smart folks to learn, and start writing checks. Being good at it takes a bit of luck, hard work, skill, etc., but in a city like New York, with it's access to capital, "getting in" shouldn't be the hard part.