By Justin Biel, trends editor at Grow Wire
⏰ 6-minute read
This article is part of a Grow Wire Guide on how to get VC funding. See links to published articles below, and stay tuned for more.
Part 1: What to Know Before You Go
Part 2: How to Tell if You’re Ready
Part 3: Pitch Deck & Presentation
Part 4: Finding the Right VC
Part 5: Anatomy of a Term Sheet
Part 6 (upcoming): Closing the Deal
Venture Capital Terminology Cheat Sheet
Getting an offer from the perfect VC partner must begin with research. You can only score meetings with VCs by first creating a targeted outreach list of firms that are aligned with your business.
The first phase of this process is understanding which VCs are a good fit for your company’s goals. The second phase is securing the meeting. This post will give you the tools to accomplish both of these tasks.
Phase I: Create a target list of VCs that are a good fit for your company.
All venture capital firms have a specific focus regarding the kinds of companies they fund: They might invest mainly in software, consumer products, fintech, green technologies, AI or any other number of categories. And each firm focuses on different stages of investment (seed, early-stage, series A, series B and series C). Thus, the first step in reaching out to VCs is research. Here’s how to start.
1. Find venture capital firms that invest in companies like yours.
Create a roster of VCs that are likely to be interested in the kind of deal you’re offering, both in terms of industry and product. Look for firms that have a track record of investing in your industry and have funded companies similar to yours in terms of revenue growth and product focus.
You can start your search for specific firm names on CB Insights, a highly-regarded resource that offers data on active VC firms and associated industries. Additionally, check out the CB Insights data-driven top 100 ranking to familiarize yourself with the heavy hitters of the VC world.
2. Ensure the firm invests in the stage of funding that you seek.
Which stage of financing are you in? Before adding a VC firm to your target list, be sure it’s actively pursuing deals in your stage.
Most venture capital firms share their investment ethos or criteria on their company website. For example, the investment criteria for Hummer Winblad Venture Partners (HWVP) identifies a focus on first institutional investments in “disruptive,” “emerging” software companies. If you have an early-stage company developing a software product, HWVP could be the right investment partner, and you should add it to your target list. If not, you should leave it off.
3. Check out the firm’s past deals.
Another way to determine if your company fits within a VC’s investment ethos is to review the firm’s recent deals, which you can usually find online. Even top-ranked venture capital firms like Accel Partners openly list their past deals. Reviewing them will help you determine if your company fits the firm’s prototype.
For example, Accel offers details on the type of businesses it seeks--and specific names of companies they’ve funded--in a blog post about their investment in fintech company Monzo:
“Over the years at Accel, we’ve backed many businesses reshaping large consumer categories with delightful user experiences,” the post reads. “Spotify with music, Etsy and Flipkart with commerce or Deliveroo with food are great examples.”
VC firms are transparent about the types of investments they make, so do your research upfront to find out if your company is a fit. You can also work backward: Locate a business similar to yours that has gotten funded, and find out which firm invested.
4. Consider location.
Some firms only invest locally, while others are open to investing beyond their city and state. If you're based in Denver and one of your target venture capital firms is based in San Francisco, be sure it makes out-of-state investments before sending an email.
It’s worth noting that some regions receive more VC funding than others. More than 80 percent of the country’s venture capital investment goes to just five metros--San Francisco, New York, Boston, San Jose and Los Angeles--according to City Lab analysis of PitchBook data. If you’re operating a company outside of these metros, you might as well be competing for remaining 20 percent. However, VC firms are increasingly willing to invest outside their regions, TechCrunch notes.
Generally, it will be easiest to get attention from a local firm. However, if your business is truly attractive to VCs, location will not be a hindrance. Cleversafe founder Chris Gladwin raised funds for his Chicago-based startup from a variety of VC partners outside his local market: NEA in Menlo Park, In-Q-Tel in Arlington, VA and San Francisco’s Alsop Louie Partners. The firms likely chose to invest because Gladwin was an experienced tech entrepreneur with three successful exits under his belt. Their out-of-market deals paid off big-time when IBM purchased Cleversafe for $1.3 billion in 2015.
5. Organize your list.
VC expert Joshua Henderson recommends including 20-30 investors and/or firms on your target list. You might consider tracking your communications in a spreadsheet like this one, courtesy of Corigin Ventures.
Phase II: Reach out to your target VCs.
Once you’ve got a target list, it's time to set up meetings. You have two opportunities to make connections: an intro from someone in your network or a cold email to a VC partner.
The “warm intro”
An introduction to a firm via a mutual connection from your business or personal network is called a warm intro. This is the best-case scenario, as VCs are more open to deals that come from a trusted source.
To find warm intros for your target list, ask yourself:
- Do you or your company’s team members have any direct contacts at VCs?
- Are there people in your extended network (i.e. parents, mentors, past employers, friends, professors) who have VC relationships?
- Does your company have board members with VC connections?
- Can you utilize LinkedIn or business networking groups to connect with VCs in your area?
- Have you worked with a business incubator or angel investors that can help open up the next phase of introductions?
The “cold email”
You may not have mutual connections to some VCs on your target list. In that case, it’s time to start cold emailing your targets.
This is the more difficult way to get a meeting, but it’s not impossible. Allie Janoch, the CEO of environmental compliance company Mapistry, secured a $2.5 million seed round with a cold email. She outlines her best practices in a post on Medium:
Create a template.
A general template will be a helpful starting point for your cold email outreach. Put together the critical information about your business and current progress, and state why you’re contacting firms. This email has to grab a VC’s attention, so include any impressive revenue stats, major clients or other eye-catching facts.
Personalize emails to individual partners at each firm.
Broad information about your company can be pulled from the template, but the majority of each email must be personalized for a select partner at each firm. Partners within firms often have a sector focus. For example, a software VC firm like HWVP might have a partner who specifically funds and is considered the firm’s expert on deals with software companies like Gladwin’s Ocient, which deal with large-scale data storage.
Research the partner, and get a solid understanding of why they’re the person most likely to be interested in your project. In your email, mention the partner's industry interests or other deals they’ve done that relate to your business.
Be direct and concise.
Get to the point quickly. Everything from your email subject line to the layout of the text should be clear, concisely explaining why your company is relevant to the particular VC.
After honing her cold email process, Janoch scored follow-up calls or meetings with a third of her targets, she wrote. The actual email she used to get a deal (with Jason Lemkin from SaaStr Fund) is embedded in her post.
The big pitch
A meeting with a VC is your chance to pitch your big idea and ask for investment. The pitch will include information about your company and detail the product or service you're developing. You’ll need to create a pitch deck for this. To learn more, visit Grow Wire’s post on “The Perfect Pitch Deck and Presentation Style to Secure VC Funding.”
🌱 The bottom line
Getting connected to the right VC to fund your business takes a thoughtful and targeted approach, which always begins with research. Once you’ve nailed a meeting, though, it’ll be well worth it.
💡 Stay tuned: You can learn more about how to get VC funding in our upcoming articles.
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