[or “What not to say to VCs”]
Part 1 of 3
Did you ask to sleep with your husband/wife/partner within 10 minutes of meeting? I assume you wanted to — that was probably why you decided to speak to them to begin with — but normally these things take time and at least a little more effort than the typical construction site catcall of “Fancy a f&*k?”.
I suppose sometimes it works, indeed sometimes seduction is entirely unnecessary … but in those situations, as with VC partners — it is a purely financial transaction. And you are the one paying for it.
As Jalak Jobanputra pointed out in a speech recently, the average time to exit for a VC funded company is around 8–10 years (and has increased) whereas the average marriage in the States lasts less than 8 years. I know people often get married ‘impulsively’ (— hello, Britney!). My instinct tells me that these marriages probably don’t last ( — hello, Britney!) but I would love to see some data to the contrary.
Imagine this, borrowing from this excellent post from Fred Destin … you are getting quizzed on whether the ping-pong table or the addition of a paleo chef to the choice of cuisines at your startup are good uses of capital. Things haven’t gone quite as you would have liked them to over the last month.Board meetings can get tough.
The world doesn’t always work according to our models, but the future we have painted to our investors is based on them. Wouldn’t it be nice to have the shared memories of “that amazing trip to India” or “the time we almost got sprung by your parents” as the backdrop to the discussion rather than “your CAC is supposed to be $15 by now and it is still $32”. Something non-numerical … a relationship that is not just transactional.
Don’t take this literally (but do let me know if sending a potential VC partner a ticket to India and a reservation for a room with a view of the Tak Mahal leads to investment!)
… what I am saying is it would probably be better to have been able to grab a drink — or have a meal — with a VC partner than not.
Most people spend a good deal of time considering whether someone is ‘the one’. It is worth taking some time considering whether a VC partner is also ‘the one’. Yes, the assumption is that you have a number to choose from, but below there are a few things I hope will help in increasing the odds of this.
Full disclosure — I am in early stages of seeking VC investment for HOMYZE but I have secured capital for a number of deals and investments in the past.
Hopefully you will get to spend a lot of time with your VC partners. But enthusiasm (Good!) and desperation (BAAAAD!) can sometimes look quite similar.
So, here we go … put on some Barry White, dim the lights and let’s make like Marvin Gaye.
Before you engage in a conversation with any potential VC partner … just say these words:
… or ask yourself, what would Andrew Dice Clay do?
Approaching a VC is the offering of a relationship. Whether it is the Tinder-isation of the dating scene that is the norm for many of my fellow founders, or the ‘spray and pray’ (unrelated point!) approach to partner-seeking — which opts for low hit-rate spamming of every person who seems in any way a conduit to capital — many Founders expect to ‘close the deal’ in a few quick strokes.
*Swipe right*, *swipe right*, *swipe right*, *swipe right* … MATCH! 11:30PM on a Saturday night. It’s on.
In actuality, your highest probability of success is done behind closed doors. And I don’t mean what you might think I mean.
First — Focus on yourself, your Company, your PRODUCT.
I don’t think I am saying anything revolutionary or controversial when I say that capital is attracted to good things. Good people, good companies, good product.
I understand that sometimes raising money is necessary, and if you as CEO/Founder are responsible for doing this, make sure that everything else doesn’t suffer as a result.
As conversations continue, and the relationship deepens, you want things to be going in the right direction for your[self]/[Company]/[PRODUCT] rather than the other way around.
Chasing capital partners can sometimes seem like running up the staircase of an MC Escher drawing (or should that be down).
You can spend a lot of time heading in exactly the wrong direction — indeed toward something that isn’t even there — even though it looks like you are heading straight towards your ‘exit’.
It can seem logical in parts, it can even seem self-contained (in that you don’t need to rely on the work of others for parts of it) … but the real world exists outside the frame.
Second — Educate, don’t fornicate, yourself
As the interweb says … smart is sexy. And at the end of the day, that is what we are all trying to do: make ourselves sexier(read, attractive investment candidates) to potential partners (read, VCs)
Thankfully, resources today are endless. Check out medium.com, LinkedIn, Paul Graham essays, YouTube, Coursera, TED etc..
To be honest, this is actually the most relaxing downtime when running a company. I don’t always see it as having the most immediate ROI (return on investment … that’s what you learn when going through these sorts of resources, and definitely native language to VCs!) so it is usually done in the comfort of my bedroom at weird hours whilst my partner lies asleep beside me. But it is super-useful, and thankfully, enjoyable. If you like learning things that is.
Third — Be interested as well as interesting
At the risk of labouring the parallels between dating and trying to find the best VC partners, there is another reason for you to get down and dirty with your keyboard … research. I don’t claim to know whether this is true or not — thankfully I didn’t need to pretend to find my wife interesting — but apparently feigning interest has big payoffs when it comes to success with partners.
Like calling a potential (or maybe worse, current!) partner by the wrong name it is unlikely to reflect well on us if we see all VCs as substitutes. Don’t approach a late-stage investor with your startup idea; don’t approach consumer-focused VCs with your enterprise hardware solution; etc..
Most of your potential ‘targets’ have LinkedIn or AngelList profiles. Most of their websites have their portfolio companies. At the very least, cut and paste the following and fill in the blanks:
“Hi, _______. I saw on your Twitter profile that you like Kurosawa movies/speed punk/small dogs. [Your company name] is not a Japanese samurai but we are in stealth mode/Here at [Your company name] we think the so-lo-mo industry is “D.O.A”/but [Your company name] will shit all over things.
I know you are really busy and I appreciate you even taking the time to read this email, but based on your hardware/social/marketplaces experience we have a few questions on which we would love to get your opinion.’
You get the point. Find out who they are … VCs are people too.
What HOMYZE is doing ‘behind closed doors’
So, we are in the somewhat fortunate situation of not needing money at the moment. We do have questions and would love the ability to ask them to people we think can help. We have counsel and would love some mentors in the marketplaces space, but we don’t need money just to survive. So we are sowing some seeds, in an attempt to grow something (read, relationships) that we can harvest (read, people with whom we can partner) in 6–12 months’ time.
First — It’s not you, it’s Us
At the moment we are focused on building the best product money can’t buy (it is free for users)
We are doing a private-alpha before we open this up to the public and we are learning so much every day. Not everything gets acted upon — we still have tradeoffs to make in terms of time and traction — but we are better for getting it out into the wild. Well, not ‘wild’ per se, more a recreated landscape at a zoo where we press our faces up to the glass peering at the ‘animals’ in the hope that this is how they would really act if we were not there!
We are building what Phil Libin and xtension [here] call our ‘Minimum Awesome Product’. We are paying attention to getting the team right for the challenges that will likely follow. We are sketching out where we want to go and our best estimates of what to do to get there.
In short, we are focused on us.
Which brings us onto the second point.
When I say we don’t need money that doesn’t mean we don’t have big plans. We have huge plans and it will probably take more resources than will be generated organically (definitely to achieve the speed with which we would like to act). Our ambitions are global and multi-product, but to stand the best chance of achieving them, we want to know more about where to allocate the investment capital. So we are information-oriented and data-driven.
In short, we are doing some research to answer these sorts of questions:
If we were to take money, how should we allocate it: 25% to product development, 25% to marketing and 50% to international expansion?
How should we stage that 50% allocation so as to maximise returns — we can’t just replicate what we do here?
What are our CACs, LTVs, Transaction values, Frequency of use, Number of users?
With whom should we partner? On what basis?
What can we do to affect all of the above?
In short, there is a lot of information that we would like to have before we ask other people to invest their (or more usually, their clients’) money. But again, we know there are people who can give us insight and introductions. These are the people with whom we would love to work.
Third, the magic words … “You should meet my friend, HOMYZE”
VCs often give you the ability to submit your pitch deck via their website. From what I understand, they are either not looked at or are used for ‘market colour’ (i.e. you are/will be a statistic). This is unlikely to yield much in the way of follow-up from investors. Worse, since most of them don’t even allow it, you can’t use it as the ‘spray and prey’ method above.
What you want is a warm introduction.
We all have friends that hooked up and have stayed together. We also have friends who were introduced to each other by someone (or some people) playing Cupid. HOMYZE at the moment is looking for people who can be our Capital Cupids. Not desperately, not (completely) artificially. Just you know, putting ourselves out there and letting our friends know we will one day be available, as opposed to hanging out on street corners approaching cars that slow down.
Maybe asking for an introduction to one of our friends’ friends on LinkedIn … when, you know, ‘I like their profile’.
“She said hi. That doesn’t mean she wants to date you. Step off”
The ‘one to many’ approach to a potential partner is not for the faint of heart. It is definitely a high-risk manoeuvre.
Sometimes the objects of our attraction or affection travel in packs … sometimes they just want ‘a night out with their friends’. Infiltrating this group has a high difficulty rating and requires near-perfect execution.
You know what doesn’t? A friend asking you along, or even better setting you up.
“My friends and I are going to this party. You should come.”
Hope there is something useful in here. This is the first (of, at the moment, 3) pieces on HOMYZE and our learnings with regard to seeking investors. You will be relieved to hear that it is the only one to use dating analogies (so far), but I can promise some more bad puns.