This is the second of my posts on how to deal with a junior VC during your startup’s venture fund raising process. (My first post on interacting with a junior VC is here.) Obviously your most important goal when talking with a junior VC is to get to a partner. Just like it makes sense to know your customer when you are starting a business, it also makes sense to figure out what is motivating the junior VC with whom you are speaking.
Personally I get pumped up by cool technologies (that’s why I’ve got four computers; one is usually on the fritz because some alpha/beta program I’m goofing around with didn’t exactly work as promised.) I get inspired by experienced managers who are doing something risky and young founders who are figuring it out for the first time. I like to work with people who are doing something new and I enjoy helping get it going – working with entrepreneurs in our office is a ton of fun. There is nothing wrong with feeling the VC out for a minute and trying to develop a bit of a connection – it works in many sales situations and isn’t a bad idea when first interacting with VCs either.
There are also other underlying goals that your junior VC likely has that he or she likely won’t mention. I am trying to build a career in the venture business. This is freaking hard, and includes needing to impress my partners with my decision making. In other words, sometimes I need to say no to companies because I know that my partners will not be interested in a meeting or conversation. I don’t want to look like I’ve got bad judgement.
Another underlying pressure felt by many junior VCs is a strong need to make investments. A young VC who hasn’t closed any deals isn’t a VC – he’s just a guy who spends too much time on the phone and at breakfast meetings (or a gal, but you know what I mean.) This means I’m likely quite hopeful that your business is the diamond in the rough that will somehow make my career. Despite this hope, I also realize that most companies I speak with are not going to receive investments from my fund.
I also have a huge need to be time efficient. I’m certain this can be perceived as me being rude (I apologize, I know it is rude sometimes), but I just have too much going on. For example, this week I am conducting diligence calls and meetings for two different investment opportunities, helping build a financial model for a young startup and doing some business development work for an existing portfolio company. I’m also trying to reach the founders of a payment processing company, “Certapay,” but I can’t find even find them! These things are all really interesting projects, so I’m not complaining. I’m more suggesting that I may not be prepared to take a breath and focus on you (and the dozen or so other new leads I talk to this week) in the way that I should and that you deserve.
So, given those underlying goals and constraints, how can you maximize your chance of maximizing our interaction? What can you do to cut through the clutter and appeal to my desire to find the next big thing?
Looks like this is becoming a big post – I’ll put these prepartion tips in a third post to be released soon!
August 14th, 2008 at 5:44 pm
This is an awesome and candid addition to the first part of this post. This is a must read for every entrepreneur to understand the motivations of a junior VC. Once you understand where they are coming from, you will be mentally ready to even take a NO.
There is one more point I would like to make from my experience interacting with junior VCs. What I found is that not all Associates are the same when it comes to their responsibilities. Associates at some firms mainly do deal sourcing and perform very little due diligence on candidate investments. Some Associates may sit as observers on the board and some may take an active role on the board. Confusing?! It took me six months and many interactions to understand these subtleties.
These differences in responsibilities for the same title, may have to do with size, structure or history of the firm. Or it could be a reflection of the Associate’s experience. Associates like Healy who go beyond deal sourcing have much more value to add to your venture than those who are mainly into deal-sourcing.
My guess is that if the Associate has limited responsibility, he or she has more riding on the deals they recommend. That means that they are tougher on you and your idea. If the Associate on the other hand has other responsibilities, the risk of making a bad recommendation is countered by the work they do on other projects.
Now the million dollar question. How do you know what are the Associates responsibilities? Simply ask them. Ask them how they fit within their firm, what their daily responsibilities are and what process they go through before they make a recommendation. The more you understand the working process, the more easy it will be for you have the right recommendations.
Healy, I have one question. I have come across Principals, Vice President and Directors at VC firms. What role do they play?
August 14th, 2008 at 6:17 pm
Prasad, I don’t agree with your point on the associate with limited responsibility. These “sourcing” associates can be the best advocates for you in a venture firm because they really really really want to find deals. Some firms with large numbers of associates even rank them on the number of quality meetings they source every month. You can use this to your advantage, but you need to be able to deliver a good pitch and subtly convince the associate that you will be able to deliver the pitch again in front of a partner.
Principals/VPs/Directors responsibilities all differ by firm, so just as Prasad mentions it’s worth asking them what their responsibilities are. They are more likely to sit on boards and have more decision making authority than a sourcing associate. However, the old-school venture model used to associate and partner, with nothing in between. So the roles really vary by fund. It’s just worth asking.
August 14th, 2008 at 6:23 pm
Thanks for pointing out the importance of deal sourcing. Deal sourcing is the most important of all the responsibilities. Without deals, there is no need to do any of the following. I was just trying to illustrate the differences between Associates across firms.
August 27th, 2008 at 3:11 am
how would the ‘foreign’ offices of these funds operate, especially those that don’t have a local office setup outside their home country (typically US) and have their team members living off a plane?
what’s their decision making process and who would be the players within the fund that would be relevant to a startup looking to raise a seed round?
August 29th, 2008 at 10:43 am
KB,
Seed investments are usually quite local investments. I don’t know if a US VC would make a habit of doing seed investments abroad. I’d imagine you’d need to seek out a local seed partner.
As far as Series A and later investments made by US funds outside of the US, I think the model varies by fund. Some, such as Atlas, have offices abroad that make these investments. Others do have their partners travel to make investments abroad. You’d want to see what funds invested in your area, and then find the specific partners who made those investments. You should try to get an intro through a local company that has already gotten an investment from that partner.
Healy