Choose the right “time” of the year to visit VCs
The VC industry is seasonal. Don’t try and raise funds from VC between thanksgiving and January or during the summer months. Its hard for VCs to get their teams together to give you a fast answer. This has become much worse over recent years according to my friends so make sure you have the cash you need to last you over these periods so you aren’t in trouble when looking for funds. You also will want a fast answer from many of these guys and if you hit them during these periods you won’t get that.
It’s competitive but you still need to meet lots of VCs
Even though there more money than good deals there are lots of reasons you will get a “no” that you can’t control so you still need to visit with 10+ VCs to get a reasonable chance of a few terms sheets. Of course you need a few term sheets to get the best terms and deals, no competition is not only an indicator to the VC to beware but also removes the pressure to give you the best deal.
Don’t even bother approaching VCs without “strong” intro
The key word here is “strong”, don’t ever just send in a plan to a VC, you might get away with it to Angels but not VCs. Make the time to build a network of respected people in your area of business interest and keep in touch with them when you are ready for VC funding. At the right point ask them for their “help” and tell them what you need and then do the work for them with a short and punchy VC slide deck that they can forward on with an intro. It’s best to have friends that have been successful entrepreneurs with VCs and know them well. Or if you can meet another friendly VC with the right connections that likes what you are doing they can also make the correct level of intro. A weak intro is one where the intro party really don’t hold any weight with the VC you want to connect with, better to find the strong ones and work those first.
Keep it clean
Make sure that you think about whether you want VC early in the funding cycle in order that you can keep the financial structure of the business simple. Most angel investors will know this and not ask you to arrange the stock in odd ways but friends/family don’t and could compromise your later funding rounds – definitely get legal advice about this and be clear you will be looking for VC later. Also, if you do take angel funding try and keep the numbers manageable (i.e. not too many) if you can so as to not cause issues with VC later.
Choose the right time in the fund cycle to get money
In this case it’s about your “sell cycle” rather than the VCs i.e. don’t choose a fund that needs to close out it’s investments in a short period if you are very early stage and need the full 7 (i.e. long time) years to scale your idea. This is bad for you and them. If you need to grow over the long term and they will be in a position to try and get liquidity on your investment before that time, you maybe forced to sell earlier than you wanted.
Choose the right “type” of VC for your idea
To paraphrase the words of my friend, there are two types of VC the “shoot for the moon” and the “faster, better, cheaper”. It’s important for your business to choose the correct path.
If you have an idea that is way out there on the potential $ scale and you are looking for early stage funding then that leads you to brand name VCs like Sequoia, Kleiner and the like. They will take the huge bets and super high risk ideas. But if you have a solid idea but let’s say it’s a more traditional approach on improving a market, product or opportunity you will be better served by visiting other top name VCs instead.
If that’s the case for you, you are better finding their specialty (i.e. like software) and approaching those specific VCs that have a history of success in those vertical markets or that type of approach, examples for software being Trinity partners, Hummer Winblad, NEA, Menlo etc
Are you personally the right profile for the VC
Many VCs, like Sequoia, are looking for a particular type of “individual” to invest in. For example in their case they want 23-35 years old, first generation immigrant, no previous VC funding and preferably one round to a huge idea. Are you the right fit for the VC in terms of your profile and to business idea? Its makes sense to try and find this out when choosing the VC you want to approach to save yourself time.
Get the right “partner” in a VC firm to connect with
It’s important to get the right level of partner in a firm to be your “champion” and then to sit on your board. If you try and get someone to senior they may not be interested unless you plan to take $10M plus in funding or have that “one time bit the ball out of the park” idea. It’s often better to fund a middle ranking partner, on the way up the firm with something to prove. On the other hand don’t get a junior member of you will not get the attention you need. Once you have funding, again this hierarchy is important, if you want the guy to show up to board meetings then you want the middle ranking guy. If you want some protection back at the VC when the plan doesn’t hit all the milestones, again you need a senior team member to protect you from the fallout. Either way, you want a hungry partner but one with some success on their track record.