Fabrice Grinda is a a successful entreprenuer who has spent a lot of time in New York City. He wrote a good post yesterday on approaching VCs with consumer facing services. Seriously, where else but on blogs can Joe Entreprenuer get tips like this?
"It seemed to me all you had to do was write an amazing business plan,
send it to a VC, organize a management presentation, do a brilliant job
and all your problems were going to be solved."
Obviously, he's figured out its a little more complicated than that. His suggestion is that entreprenuers take the time to get something up and running before they start raising a lot of money for their idea:
"If you wait until you have a functioning product and a proof of concept
– even on a small scale – you will have proven that you can execute and
that your go to market strategy has some merit and you will then find
VCs to be much more responsive..."
This is largely true and the interesting word he used was "proof." He talks about the difference between different types of risk, and that "VCs are willing to accept idea risk much more than execution risk," but I think there's something else going on with that relationship. If you can build something that people use, in other words, get past execution risk, you have also, in a sense, addressed your idea risk. After all, when's the last time a lot of people started using a product that was a fundamentally bad idea? Particularly with web services, executing on a launch allows the consumers to judge which are the best ideas, rather than letting a VC make the call before the consumers have spoken. Sure, consumer surveys might be helpful, but getting actual consumers to use a product is much more meaningful.
He also gives some good tips on how to approach a VC once you've got your service up to a useable status:
"Sending a VC a 50 page business plan and hoping to get a reply is not a realistic approach."
Well, you might get a reply, but he's right in that simpler is better, at least up front. The same way you should have a two minute elevator pitch, you should probably have a document that someone could read in two minutes as well.
"E-mailing it to businessplans@vc_name.com is unlikely to work as that
e-mail address is flooded with thousands of ideas and projects and your
presentation is likely to get lost in the clutter... The best way to approach a VC is through someone they know and to organize a brief voice conversation. "
Well, hopefully that's not the case. Losing business plans would definitely be an issue. However, I think the real key here is that getting recommendations from people you know go a long way to addressing another key risks VCs worry about: management risk. A vote of confidence from a trusted source goes a long way.
Read the rest of Fabrice's post for a few more tips on how to get off the ground here.