For entrepreneurs setting out to raise a round of VC financing, with some diligent research, it’s reasonably straightforward to put together a list of target firms to pitch. Start with the firms of whatever city you’re in that have a history of investing in the stage and sector of your startup, then augment with additional firms outside your home geography which may have a strong particular fit with your company.
Yet once the right firms are identified, I believe that the tougher challenge is to determine which partner at these firms to approach. Most firms have anywhere from a couple to up to a dozen or more partners listed on their websites. How do you optimize your chance of success (i.e. ultimately, a term sheet) when pitching any given firm? Unfortunately, the thought process isn’t that clearcut, as there are a number of factors to consider. However, the easy rubric here is to follow an “always, sometimes, never” guide to determining the right person to pitch.
Always think about fit. It matters. A lot.
The first part of finding the right fit is from a domain perspective. Are you a founder of an ecommerce startup? It makes a lot more sense to pitch a VC who is on the board of numerous (non-competitive) e-commerce companies than someone who specializes in SaaS. He’s going to inherently better understand and help your business, both now and when you’re facing stumbling blocks down the road.
Fit extends to other dimensions as well, like stage (historically, does the VC make early bets or pile on in later rounds?), geographic expectations, number of their current board seats (and their capacity), etc.
Always take into account an individual VC’s reputation. A very important question is: Do you want to actually work with this VC? He or she will be sitting on your board for at least the next few years, not to mention all of the time spent collaborating between meetings. Even if a firm has a great reputation, sometimes individuals at that firm aren’t as pristine. Through some informal queries of fellow entrepreneurs, you can learn some additional data points on a VC’s reputation. Different entrepreneurs and different VCs all have differing working styles; some match, some don’t. The key is to be self-aware about what will work best for you and proactively seek it.
Always consider tenure at the firm. Even if a firm’s members are almost all titled “partner” externally (and not other gradations like Managing Director), some partners are still more equal than others. However, how long a person has been working at the firm matters too. Even if an individual is designated by title as being more senior than another, the individual with a longer tenure always yields more soft influence to get a deal done given his or her deeper relationships, organizational know-how, and established trust with colleagues.
Sometimes it’s as simple as going to the partner who is “easiest” to get to. Some partners at VC firms are just more accessible than others, taking more meetings with entrepreneurs both inside and outside their immediate networks. And if you’re easily able to get an introduction to a particular partner through a close tie in your own network, that’s often just the right approach. Don’t overthink it. Also, bloggers or those VCs active on various social networks generally tend to be more available (though this might also mean that these partners are receiving the most inbound deal flow because of their visibility and can be the most distracted because of it).
Sometimes it’s better to go to a more senior partner. As a general rule, the more senior the partner, the more power he or she has at the firm, so that specific investor is more likely to make an investment happen if they’re excited. But the fashion of VC titles changes over time, as there is a constant tug between conveying influence to the outside world for every team member while differentiating among rank.
The dirty not-so-secret is that a “partner” designation isn’t necessarily a true equity Partner in the firm’s actual businesses entities. Be careful, as these “small P” partners have less political influence internally. The flip side is that some of the very senior partners towards the tail ends of their careers are going to be less prolific in making new investments given the long term aspect of the commitment involved. Even though they have real power internally, their likelihood to push a new initiative forward is less than their more active partners.
Sometimes you should worry about “inside baseball.” There are myriad internal and personal factors that affect the outcome of an investment decision process inside a VC firm, but these are unfortunately hard to assess from the outside. These issues range from the number of deals an investor has done recently (the more in a given year, the less likely to do another) to being majorly distracted by existing portfolio companies to dealing with personal issues. These items aren’t going to be readily apparent externally and are only something other VCs would know (if they’re known at all).
When founders in our portfolio at NextView go out to raise a Series A, these are some of the things we talk about. We make it a habit of holding a deep-dive into their pitch, their approach, and their outreach list, and we try to be as hands-on and helpful as possible or as they need us to be. But given that these inside baseball items are opaque, it’s only useful to pay attention occasionally when approaching a firm for the first time.
Never ignore a prior relationship. Even if it’s a cursory existing relationship, if a founder knows one of the partners at a firm, it’s almost always the case that the best way to approach that firm is through that individual partner. If you instead approach a different partner through a mutual connection, there is a major risk it’ll appear within the firm like you’re going around your existing tie. An investment process will stop immediately if that’s what appears is going on. This rule is especially true if you’re re-approaching a firm again after they have passed on investing in the past.
Never be dismissive of junior investment professionals. Principals and associates may not have the full power to complete an investment without air-cover from a partner, but they are certainly integral members of any decision-making process. Ignoring or, worse yet, being rude or inconsiderate to a junior investor is a fast way to ensure that a deal won’t happen.
Ultimately, this is a relationship driven process, so use good judgment and the information above to make the right decision about which particular investor you approach at a given firm.