At some point in their lifecycle, many VC’s try to open up the black box of decision making at their firms via a blog post. When I read these posts, generally gloss over because they are explaining to you the things that I call table-stakes: the basics that will just get you in the door at a VC firm. Examples include disruptive, large market, high barrier to entry, scalable, blah, blah, blah.
In fundraising, I believe that the most important thing that you can do to dramatically increase your chances of success is to better connect with the individual partner that you’re working with at a given firm. By figuring out what makes this person tick, you can turn them from a passive decision maker into a champion of your company. This seemingly small nuance will give you an infinitely higher chance of having his/her firm making an investment in your company. While this sounds really logical, it is amazing to me how many entrepreneurs send over data, decks and emails, without any thought of what it will take to actually woo a partner (and I don’t mean faking it – this needs process needs to be completely genuine). By turning a partner into a champion, many good things will begin to happen. They’ll bring you up in partner meetings, make sure that the process runs smoothly with their analysts and associates, introduce you to people who can help you grow your business or solve a specific problem. And, when the ultimate decision time comes, they will be in your corner fighting for you with their partners.
Unfortunately, figuring out how to romance a partner is next to impossible because we are all human (well, some are robots…) and the key to unlocking the vault is ever-changing
So, with that said, here are the things I think about and look when looking at a potential investment. As I said, all of the market disruption, size, and competition stuff is table-stakes, so this is the peel-the-onion, next order of thinking.
Where did you come from?
Generally you get through the “door” when you come from someone whom I like and trust. There are a number of sources that get preferential treatment and immediate consideration to take something that they recommend into deep diligence. Get through their door and that is a big boost of confidence for me. As with most other firms, the social filter is a great way to look at a lot of high quality pre-screened companies.
Besides the traditional need to be referred from someone whom I trust, I also care a great deal about your background and what makes you tick. A lot of the time, knowing what you value as a person is as important to me as the company that you are working on. If your world-view aligns with mine then I have confidence that you will be making decisions that align with those that I believe will make you successful.
Why are you spending your time on this?
I always try to separate the “get rich quick” guys from those who are truly passionate about what they are working on. I can’t stand the get rich quick schemers. I like to think of myself as a pretty patient investor. I like the guy who is thinking about what the company will look like when they’re 80 years old and their wife is telling them it’s time to retire, but they don’t want to hand their creation off to some hot shot, young Harvard MBA who knows nothing about electrophysiology.
How much have you risked on this venture?
You don’t need to mortgage your house, borrow against your sister’s 401(k) and trade in your ’99 Toyota to prove that you have risked a lot on your new venture. There are small sacrifices that can have bigger impacts than just plowing money into a start-up. For example, the founders of PaperG, who are first generation Americans, proved their commitment to me when they explained the personal sacrifice they faced when dropping out of Yale. Those guys were facing parents who would, literally, never talk to them again if they didn’t complete their Yale educations. Of course, I am not in this to break up families, so the entire investor group, along with the founders, figured out a creative way to help them finish up school while running PaperG. They were on the 5+ year plan but who’s counting?
Do I look forward to diligence meetings with you?
No explanation here. Am I thinking about your company before bed and excited to share ideas with you at meetings – or am I just going through the motions?
Do I open emails from you immediately (may not respond immediately)?
This is one of the biggest indicators for me as to how interested I am in your company. I, generally receive 150+ emails per day. If a company is hot on my radar screen, I like the founding team and love the product, I find myself itching to correspond. As many of the CEOs who I interact with on a regular basis will tell you, when I find something that I believe in, I am naturally trying to spend more and more time working with them.
Am I excited to share this deal with my friends in the investment community?
Assuming that I am going to participate or lead a syndicate (90%+ of Launch’s deals are syndicated), then I am going to need to introduce you around. As I am doing this, it is important to note, how quickly I send these referrals out. Similarly, if I am not the one qualified within Launch to look at this company, how fast am I moving you through our organization?
Are you doing something that will help mankind?
In general, I like to think that I spend my time helping people build companies that will leave this world in better shape then when we started. It doesn’t mean that I am interested in investing in the double bottom line. There are great firms that focus on this as a strategy; we are not one of them. What it dos mean is that I would prefer to spend my time getting excited about a company that will transform an industry, positively change people’s lifestyles, contribute something substantial to science, the arts, humanities, etc. etc. I am more interested in creating and disrupting markets rather then building on top of them. Again, this doesn’t mean that LaunchCapital only invests in start-ups like this, but it is probably what I am spending my time on.
For reference, here are the companies within Launch that I am responsible for, or that I had significant input into the diligence process and the year of investment:
Apparel Media Group – 2011
Carsala (shutdown) – 2008
CustomMade (along with Bill McCullen) – 2011
Continuity Engine (along with K. Drakonakis) – 2009/2010
DoubleDutch – 2010/2011
Green Life Guides – 2009/2010
HoDo Soy – 2008
Kibits (along with Tom Egan) – 2011
Lefora (sold to CRWG) – 2008
Life360 – 2009/2010/2011
Liquor.com – 2010/2011
LP33 – 2010
Mobile Spinach – 2010/2011
Momelan (along with Bill McCullen) – 2010/2011
PaperG – 2008/2009/2011
ProFounder – 2010
ReportGrid (along with Tom Egan) – 2011
RentJuice – 2010
SecretBuilders (along with Bill McCullen) – 2009
SocialSci (along with Bill McCullen) – 2010
STR (along with K. Drakonakis) – 2010/2011
YouRenew (along with K. Drakonakis) – 2010/2011
zozi – 2010/2011/2012