Venture Funding 1-2-3

Inspired by this post:  Vaporizing VC interest.  I am constantly asked how to approach Venture Capital and how to get introductions.  Here is the problem; asking for introductions to the wrong VC due to personal relationships is a fools errand.

“Only a few find the way, some don’t recognize it when they do – some… don’t ever want to.”
― The Cheshire Cat

The 1 – 2 – 3 of a VC’s rational

  1. You are “deal flow” and “the product”
  2. Sound positive and investigate all potentials in a deal
  3. Never be negative. Always remember that you never know which will be a success, so don’t piss off a founder.

It’s with these 3 points as a backdrop mixed signals are sent. VC’s will always see a “reasonable” deal, seem interested enough to mine data, and leave you with a positive note. ++

My advice to founders:

  1. Treat Venture funding as a sales process.  Qualify! Does the firm have “dry powder” and are you in alignment with a current investment thesis.
  2. Venture funding is a marketing effort. If you have a target strategic business opportunity that is venture funded, pitch their VC’s. You never know if there is a nature synergy for investment, or they will know about you and affirm your deal in a board meeting down the road.
  3. Be concise and clear with every meeting. Close with next steps. No next steps, no deal.

Do not: “oversell” yourself or value proposition.  Word gets around.  “Companies, like fish, begin to smell after three presentations.” – twisted Benjamin Franklin

Do not: go into a meeting with an EIR in the room.  EIR’s often develop projects based on a firms thesis and some of your ideas might be rolled into a “master plan”.

Do not: think anything is confidential.  VC’s shop ideas and do competitive research for their LP’s and portfolios.  That is why they never sign NDA’s.  Which btw, are not worth the paper they are printed on normally.

And by no means:  assume that the firm will spread the good news of a great new innovation like you.  Quite the contrary.  A firm will keep a good thing as quiet as possible so they can make the most of a deal.  If they do spread the word, it’s most likely that they don’t have dry powder and are trying to leverage a relationship for favors.  Worst case, you are being passed over and passed down to a lower tier firm.

Let me be abundantly clear.  This is not a negative indictment against Venture Funding.  I am criticizing the Founders who pursue introductions and funding with little or no respect for the business of Venture Capital.  It’s a business just like yours and they have taken money from their investors.  They are doing a job and mining a natural resource.   YOU!  Don’t go into this or any process without fully understanding the situation.  Qualify your target market and market your value to them.  If your aspirations and the ROI align, a Venture Firm will be a good business partner.

Good luck out there!

++(Some do not follow this general rule and rip founders a new one for fun)++


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1 comment on “Venture Funding 1-2-3”

  1. Jeff 'SKI' Kinsey Reply

    >> Do not: go into a meeting with an EIR in the room. EIR’s often develop projects based on a firms thesis and some of your ideas might be rolled into a “master plan”. <<

    Great point.

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