Q: How does a first pitch to a VC end?

A: With a “No” or “$$$!”

(and everything in between)

I’ve had a few entrepreneurs ask me how quickly we decide to move forward working with a company. Do we huddle up after every meeting to discuss? Do we check companies off on the Monday meeting? Is it more of an individual thing or a group process? (More on that later.) Essentially, all of these questions drive at understanding what happens after that 30-60 min. first meeting.

There are a range of options. I’ve bucketed them into a few categories based on my experience, ranging from worst (lowest likelihood for an investment) to best (expect the term sheet this month). In most cases, whoever you’re meeting will identify next steps during the meeting. If they don’t, you should ask.

“No.”

Full stop. Comes when your company is not within our focus (product, industry, market, technology, stage – too late, geography, etc.) or we may have invested in a competitor.

When you receive this answer, you should figure out why. If it’s cut and dry, for example, you’re a biotech company pitching a software VC, move on and focus on investors that are a better fit. If there is something else the investors are seeing, for example, a broken business model, try to flush it out. Its very low risk (the VC has already said no) and you may be able to identify other risks, learn about new opportunities, intros to other investors, and so forth.

“No, but just for now.”

This is a legitimate answer if you are either too early for the VC or you are not fundraising at the time of the conversation.

You can tell if the VC is interested if they ask for your investor updates (mildly interested), that you reconnect when you begin fundraising (more interested), or to put an update meeting on the calendar in 3-6 months, even if you’re not planning a raise (really interested).

Make sure to follow up on these actions. The more data points you have on how the VC acts, and the VC has on how you perform, the better.

“Let me get back to you after we discuss on Monday.”

Some say this is a cop out for not being able to say “no” in person. In other cases, the person you’re meeting with just might not be sure what the next step should be. For example, if I’m meet with a marketing company am just not sure of how interesting their product is, I’m going to consult with one of the partners that knows the ins-and-outs of marketing tech. If he’s interested, we’ll set up another meeting to get him up to speed. If he’s not, I’ll take his word for it.

The problem with this response is that, as an entrepreneur, you probably don’t exactly know where you stand. The upside is that you should only wait a week for a clear answer.

“Are you free next week?”

Great outcome. This means the VC would like to give more of their team the opportunity to meet with you and hear your story.

The (small) downside? Another 30-60 min. that could end with any of the options already outlined.

Tip for the next meeting: if there are new people in attendance, start from the top, but accelerate the pace. It’s likely that they’ve been briefed or read notes from the first meeting, but no one tells your story like you do.

And… very rarely… “We’re in.”

Note: this never comes from an associate and never with companies later than seed stage.

In it’s most basic form…

Aside from everything else that’s going on in that first pitch meeting, you’re trying to figure out where you stand so you can minimize the time you spend on VCs that aren’t going to invest and maximize your potential with the VCs that may. If it’s going to be a “no,” get there quickly, but try to get the most value out of the interaction – be it introductions, feedback, or advice. Then, follow up, keep folks updated, and see if those “maybes” can be nurtured into “yeses.”

What else should VCs be doing to make the process less painful, more transparent? 

Q: Why do these VC coffee chats all seem same?

A: Either the VCs you’re meeting with are monotonous or the questions you’re asking are

Ok. That may be a little harsh.

But really, how do you make the most of “informational” interviews?

Avoid asking questions that are already answered online. I’m not talking about funding nuances or even the latest startup news. What I am talking about is knowing the basic structure of the industry, a general sense of the different stages of funding, and the high-level trends in technology and investing.

For example, here some questions you can answer online:

  • What metrics or KPIs do you look at to evaluate companies?
  • Where can I get information (blogs, newsletters)? Hint find out here and here
  • Note: its always ok to ask questions to that dig into these topics, but know what they are ahead of time

And others, worth asking, that may be answered differently by each VC you meet:

  • How do you think about effective sourcing? Inbound or outbound? Generalist or thesis driven?
  • How does your team split up roles and responsibilities?
  • What is your diligence process? How structured is it? How would you improve it?

I ask other VCs these questions, or they ask me (note: these are also fair game, and helpful, for entrepreneurs to ask VCs):

  • How are you thinking about X technology? Y industry?
  • Why did you make Z investment?
  • How do you think about investment pacing, check size, follow on, etc?

To formulate questions appropriately, research the VC beforehand so you can ask about things they know really well and may even have a unique perspective on.

(Also, from the other side, it stinks to get asked about things that you don’t know much about. For example, I know a lot about IoT but very little about healthcare. Ask me about HIT? I’ll be self-conscious the rest of the conversation)

So what can you look at?

First, their firm. What is their focus from a stage or industry perspective? Are there any interesting portfolio companies?

Then, them. Do they have a blog? Read it. Do they tweet? Skim and identify what they care about. LinkedIn? Find out if you have something in common or if there is a part of their background that is relevant to your big questions.

All in all, the key here is to have enough of an understanding so that you can ask more of the “how’s?” and “why’s?” than “what’s?” You’ll get richer information and very likely having to articulate the answers will be a useful exercise for the VC.

P.S. Some other tips:

  • Think about any way you can be helpful. I attempted this before I got a job (albeit I rarely added any actual value). However, it shows that you’re considerate and thankful for your counterpart’s time – this probably means they’re more likely to help you, make intros, etc.
  • If you’re asking for an intro to another VC at the end of the conversation, be able to articulate what type of questions or topics you want to cover and what you hope to get out of the conversation. It’ll help the person you’re meeting with think of who would be best and give you a greater chance of getting another conversation. 
  • Follow up (via email) if there were any action items from the meeting. Its easy to forget and people are effort-adverse 

How can VCs be more helpful?

Q: Crap! What do I do now that I’ve got a VC interview?

A: Learn the fundamentals, develop a point of view, and demonstrate what you bring to the table

“Yep, you did your homework”

These are what I call table-stakes. When you come to the interview with more than surface-level knowledge of the VC industry, startups, technology (if that’s the type of VC you’re interviewing with), and the folks you’re meeting with, you’ll make a good impression.

Do this by developing a working knowledge of VC using online resources and your network

  • Know the basics of the VC Industry – Can you answer the questions: how are funds setup? How do they operate? How are they measured? What are some common strategies? What are their motivations? Both books and blogs are good for ramping up.
  • Get familiar with the startup ecosystem – Track who the great successes are, who recently got funding, which VCs in the area are active. Keep up to date with this news.
  • If you have a background in technology, make sure you’ve got it covered and you’re actually an expert in your expertise. If not? Learn key vocabulary and metrics – You can find out what most VCs focus on. Know the basics of the types of businesses in which they invest.
  • Dive deep into the VC – figure out who they invested in and speculate why. Understand their thesis. Follow them on twitter. Read their blogs.

Granted, this involves a TON of effort. You want to get credit for the time you’ve put in. So, even if the conversation isn’t going in a direction that lets you highlight your mad preparation skills, come with a strategy to steer the conversation naturally in your favor without being awkward or coming across as a showoff 

  • You can make an on-topic statement that invites a follow up question. For example, if we’re discussing a startup or new technology, I may say “The market’s moving too slow for Company X to do Y.” Full stop. The next question, “why?” gives me a chance to show my thought process and knowledge of the industry/market.
  • You can find a way to add value to a portfolio company through real and meaningful customer introductions or talent referrals. When I was interviewing for an internship position, I found a company that was complimentary to that of Silver Spring Networks, my current employer. I asked for an intro to the CEO/company to discuss a biz dev opportunity
  • Use examples of real startups when articulating your points.

 

“Nice. You’re different than the other ones I see”

This happens when you have a share deeper perspective or form a specific opinion on all the knowledge you’ve gathered to date. If it’s actionable, even better.

  • Remember those VC industry metrics you were tracking? Have a feel for where the industry is going and articulate how it will impact your target firm’s investing habits. Are valuations changing? Startup or funding volume decreasing? This is all about sharing your thought exercises
  • Bring a few investment opportunities to the table. Chances are you’re likely not bringing something new, but again, shows how you think and that you can source*
  • Develop your opinion on portfolio companies. Know which ones you like and which ones you don’t… as much. Have the confidence to say so and be ok with being wrong. If you get the associate gig, you’re not going to be off writing checks willy-nilly, so here’s the time to be making hypothesis and testing them, developing arguments, and opening yourself up to coaching and learning. If I look back to my interviews at HPVP, I think my record is 2/3 based on progress thus far. The one I mis-categorized began marketing a lot just after my second interview. I had come back with a great line about how quickly I was proven wrong.**

*this is really important for the “picture me here” effect

**can be a little tricky, especially if you don’t know attribution (who on the team led the deal) and won’t know if you’re sh*ting all over a deal someone in the room did. All the more reason to be thoughtful and well spoken

 

“Wowzers”

There are some associate stories out there that just blow me away, and I don’t even know half of them. The “wow” factor is either how you get your foot in the door or how you close the job, but either way, it can set you apart from other folks vying for the position. Its hard to describe and there is certainly no formula or path to follow (otherwise, no one would be “wowed” by “it”). This first step is understanding your strengths. Could be skills, background, expertise, personality, etc. Could be a combination.

Mine? Hustling to take every opportunity I could with total disregard for my current skill set (or lack thereof) and spare time (again, or lack thereof). I got myself in the right place at the right time, and I had done enough groundwork to capitalize on it. (Yes I know, not that exciting, but I should show you the white-boarding I did to get there…)

Others? They’re a bit more tactical. For example, I have a friend, an expert networker, that created a database of all the VCs that he was connected to on LinkedIn and turned it into a geographical visualization. The message? I bring all of these people to the table. (in addition to all of the skills an smarts that others have too.)

Some people create social presences. Others do project work to prove themselves. A few are so persistent people just give them jobs to stop the nagging (almost kidding). Find out who you are, build a strategy around it, and go all in. Because everyone who is serious about VC is putting in the work.

Q: How do you find (source) companies?

A: Sometimes you have to get creative. Most times? Its just knowing where to look and being disciplined.

Sourcing is either inbound or outbound. Inbound deal flow takes a while to establish but can be incredibly powerful. Outbound sourcing takes constant attention and effort. I’ll explain.

Inbound deal flow is when entrepreneurs either approach you directly or someone in your network introduces or refers them to you.

Any company that comes to us at Hyde Park VP will be looked at. However, the method may determine the priority and urgency of analysis and response. For example, we likely will set up a meeting with a company that one of our LP’s (the folks that invest in our fund) introduces us to fast than one that contacts us through our website. Additionally, if another VC, entrepreneur, or contact in the industry let’s us know about a company, we’ll move quickly. (Now, all things considered, setting up an inbound deal flow machines take a lot of time and curated activities. I’ve been lucky to join Hyde Park and take advantage of an already strong and growing brand.)

So what does this mean?

For entrepreneurs – Find a way to get a warm intro. Look on LinkedIn, go to strategic events, you know the drill. But, if you can’t, just brute force your way into a meeting. Once you’re in the meeting, everyone is on the same footing. If you’ve got a great company, how you got the meeting won’t matter and in some cases, it could reflect highly (e.g. your sales capabilities).  

For VCs or those interviewing – see who you know that isn’t necessarily in everyone else’s network and find out which companies they know or track. For example, I still keep up with my former colleagues at an IoT company. Some of them look at startups from a corp dev perspective and some from a partnership or ecosystem perspective. They could know about companies that haven’t hit us yet, because we’re coming at “sourcing” from a different perspective.

Outbound sourcing is when VCs find a company and contact the CEO directly. Many time, its via email. 

First off, there are the “easy” ways of finding companies, especially as you move to later stage startups. There’s a much bigger track record and backlog of press, funding announcements, social media blasts for later stage companies. So these methods?

  • Funding announcements – Term Sheet, StrictlyVC, Crunchbase, Pitchbook, Inside VC, FinSMEs, CBInsights, VC Tech Daily, and the list goes on. Many daily newsletters include both funding announcements and news on tech (an even longer list)
  • Awards lists – Mostly centered around communities (geographies) and are either locally published lists of “best office” or “greatest place to work” or they’re actual awards events
  • Startup databases – AngelList, Crunchbase, F6S, CBInsights, Pitchbook (see some overlap?)  attempt to include most, if not all, startups

Keeping on top of these sources requires some rigor, but is usually table stakes for most VCs that engage in outbound sourcing or are simply staying on top of what’s going on in the industry.

Then, there are the other, more laborious and manual methods of trying to find early-stage companies that aren’t necessarily hitting the popular channels. Looking at new hire announcements, reading online reviews, scouring local news twitter feeds. Much more relevant for seed and early A companies.

And the meaning?

For entrepreneurs – the local press-stuff matters. Not necessarily for evaluating your company, but for finding you. Obviously, can also be helpful in attracting talent or providing reference for customers.

For VCs or those interviewing – look local and see what you can find that isn’t getting picked up in VCs normal sourcing methods. Job postings, new office openings, small business or technology grants, tech transfer at universities, etc. During my interview at Hyde Park VP, I used local newspapers in smaller startup ecosystems as a way to find new companies.

And then there’s the other stuff… accelerators, demo days, mentoring, having “boots on ground” that fall somewhere in the middle.

It’s all grey area anyway, right?

 

Where else should we be looking?

Q: What do you actually do as a VC Associate?

A: Well, it depends. (And I know that’s a cop out answer)

Here’s some of what I do:

  • Sourcing and screening. Finding new companies is one of my largest responsibilities. Screening includes making decisions to push companies forward through the investment process (i.e. introduce them to more team members) based on initial conversations and/or initial diligence.
  • Diligence. When we get more interested in a company, I’ll dig into market, competition, company metrics. If we get really interested in a company, I’ll support in first-person diligence and a deeper dive into the startup.
  • Portfolio support. I’m trying to better understand how we can be an effective resource for our portfolio companies in a scalable and repeatable way (if you have suggestions, let me know! tweet @jaydimonte)
  • Community building. I mentor companies in accelerators, incubators, and am constantly talking to folks prepping for fundraising, trying to work in VC, learning about the process.
  • All of the other random small-co stuff. We are a small company too… Someone has to do quarterly reporting (yes, we have investors just like the companies we invest in)!

And some of the things my counterparts at other firms do:

  • No sourcing. There are some firms where associates support deal work with diligence but aren’t responsible for finding new companies. This is more applicable in firms that spend less time doing outbound sourcing (i.e. reaching out to companies vs. having companies referred to them)
  • Projects for portfolio companies. A few firms actually farm out associates for short-term focused projects. For example, if a company is working on a new sales strategy, an associate may work for a few days a week helping lay out the plan
  • Support thesis work. If a firm is very thesis-driven, associates can do much of the research on market opportunities and identify companies in those categories

I’ve realize a few factors that go into how responsibilities get doled out to VC associates. A lot of it has to do with the type of firm you’re joining:

  • Your firm’s target company stage is a big one. As you move from Seed to Series A to Series B, etc., you have much more data to work with. Where seed investors may focus more on teams and markets, later stage investors may dig deeper into financial statements (for example, I usually talk about revenue, CAC, LTV, etc., where some of my friends at later stage go deep into EBITDA, margins, etc.)
  • How big your team is. As firms have more resources, there can be some specialization in the work you do. For example, at HPVP, we have an incredible sr. marketing manager (shout-out to @jacktrox) that manages everything from our social media presence to our limited partner (LP) communications. Much of those activities would fall onto partners or associates on smaller teams

Key takeaway? The missing element is constant learning. Regardless of the specific activity, the great thing about working with startups is that each day brings something new – and stretches you a bit farther. From analysts to partners, they’ll all say the same thing.