The VC fundraising process can often be opaque, especially if you are a startup founder attempting to raise external funding for the first time.
One US Venture Capitalist who has tried to shine a light on the behind the scenes activities of VC’s is Mark Suster, the Managing Partner of Upfront Ventures and man behind the popular blog, Both Sides of The Table.
Recently Mark published an article that looked at how to plan for and execute on the perfect fundraising process. In particular, Mark reminded all startup founders that
“An investors job is to deploy capital and make a return. If you truly believe that you, your company and your products are exceptional and your company will be valuable then you’re actually doing them a FAVOR by helping them invest in your startup.”
Planning Your Approach
According to Mark, he likes to start with a list of approximately 40 qualified investors. That means, investors who have the appropriate size fund for the type of round you are raising, invest in your geography, match your industry focus and have capacity available.
Once you have your list of 40 qualified investors you should also segment them as follows:
8 to 10 “A’s”
8 – 10 “B’s”
And the last 20-24 “C’s”
Where the “A’s” are the Venture Funds you would prefer to raise funds from the most. That said, Mark points out that “your list never stays static. If you have a mediocre meeting with a high-quality prospect and you don’t think they’re likely to lean in they drop to a B or C.”
Start With “Safety” Schools
Unless you have a strong relationship with a Partner or Fund on your “A’s” list Mark recommends that your first two meetings are with “Safety Schools”, or one fund from your “B” List and another from your “C List”.
Essentially, these two meetings act as practise for your “A” meeting and let you get a sense for the types of questions, comments and concerns that will be raised during your pitch, or later in Due Diligence.
After you have completed the first two meetings Mark then recommends starting your fundraising process in earnest by engaging with up to 8 – 10 firms.
Engaging With VC’s
As Mark points out engaging with multiple firms at the same time is important and something that you need to constantly manage. Essentially you want to try and keep all of the funds you are talking to on the same “timeline”.
This is important because if one fund leans in and provides a term sheet and you have not yet engaged with the other 8 – 10 priority firms then you have no way of comparing the deal that is in front of you. In addition to that if you only engage with one or two firms at a time it becomes that much harder to create a sense of urgency and competition around your deal.
Finally, Mark shares some insight on how to gauge whether or not a VC is engaged. In fact, it is rather simple and straightforward. As Mark points out “There is a super simple way to know if a VC is engaged. If you get a second meeting, a follow-up phone call or you know they’re doing actual work then they’re engaged. No VC spends more time evaluating your company unless they know that they at least have some interest.”
If you are not getting that then you should reassess where you are focusing your time and attention and look to engage with the next batch of VC’s on your list.
If you are interested in reading all of Mark’s thoughts on the VC fundraising process you can read the entire article: How Many Investors Should You Talk to in a VC Fund Raise? And How Do You Prioritize? here.