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More in the 50 Questions Series50 questions: What can I do to control the timetable/reduce the time it takes to raise venture capital? | 50 Questions: What is anti-dilution/downround protection? | 50 questions: What are the alternatives to venture capital? |
50 questions: What should I try to achieve in the first meeting?
Together with Nic Brisbourne of The Equity Kicker / DFJ Esprit, I am writing a series of 50 questions you should ask when raising venture capital. We expect the series to run for a year, after which we will collate the answers into a book. We view this as a collaboration, so please comment to help make this series even more useful. This is #33 in the series.
So much seems to ride on the first meeting with a VC that many entrepreneurs find the experience terrifying. The meeting takes on an importance all of its own, and becomes either a ordeal to be survived or, worse, the single meeting that will make or break your company.
It’s neither. So take a deep breath, relax, and read on.
Raising money is a process that takes time
VC blogger Mark Suster says VCs “invest in lines, not dots”. What this means is that investors want to see your journey over time. They want to hear you say what you are going to do and then watch you either do it, or adjust your business plan when it turns out your original expectations were wrong.
So unless you are very very lucky, or this is your third startup and the last two sold to Google for bazillions, you won’t get a termsheet out of this meeting. (Actually, even then, you won’t get one in this meeting).
The likelihood of any given investor investing in your company is very, very low. You may be at the wrong stage for them, or the wrong sector. They may have other companies in the portfolio that are too close to what you do, or they may just not like the subsector that you compete in. That’s why you should be aiming for at least a dozen initial meetings, and probably 20-30 as you scope out potential investors.
You also shouldn’t be going in cold. You’ll already know the VC a little. You will have thought about the best way to approach a VC, you’ll follow them on Twitter and had the occasional exchange, you’ll have met them at a conference, or grabbed a cup of coffee one morning.
So what do I want from a first meeting?
The answer to that question is easy: you want to get a second meeting.
There’s no need to go all testosterone-fuelled sales maestro though. I once had a client who had recently been on a “sales” course. I told him that a VC was not interested in his company. He replied:
Everyone has a limit to how many times they will say no. Just keep asking until he caves.
This was a terrible approach. To see why, let’s jump forward to the end of the process.
How does a deal get done?
For a VC deal to close, the partner you’ve been dealing with needs to convince all his other general partners. He needs to believe in the deal. He needs to believe so passionately that he can convince people who are – for good professional reasons – trying to find a hole in it.
He’s not a timid old lady being browbeaten to pay for insurance she doesn’t need by a man in a cheap, shiny suit who won’t leave her doorstep.
So what you want from a first meeting is good, honest feedback. Ask for advice at first, not money. Explain your business clearly and listen carefully to the questions the VC asks. Don’t ignore, bluster or make up answers to their questions. VCs are smart people who see lots of companies every week. If they are asking you a question about your business, listen, because it might teach you something very important.
When you get to the end of the meeting, ask “What do we need to do to get to the next stage?” You will get one of two answers (I paraphrase):
- “Go away and come back when you have more traction”; or
- “Send me x, y and z materials and I will discuss it with my partners”.
Your objective is to make it as easy as possible for the VC to persuade his partners that you are an investment they should consider. The first meeting is the first time that the VC can tell you what he needs to take your investment further down the pipeline.
Make sure that you listen.