VC Mindset

I’m gearing up the fund raising engine for my new company. This will be my fourth fund raising cycle. Let me tell you it doesn’t get any easier. Ideally there is at least 18 months between fund raising. A lot changes in that 18 months. The VC landscape is completely different from when I last hit the fundraising trail.

One thing that experience has taught me is to always do your homework. Part of the homework for me is understanding what motivates VCs. Many believe we are entering a bubble. In the trenches VCs are seeing more deals crossing their desk. It’s getting harder to spot the great deals.

From my recent experience, VCs right now fall into two distinct camps: those afraid of investing in the next Pets.com and those afraid of missing the next Facebook. Neither of these stances is right or wrong, good or bad. It’s just the way it is. When pitching, I’m finding it very important to understand which camp the person is in and modifying the pitch accordingly.

Fear of investing in the next Pets.com This investor will care more about the business plan and less about the team, the market, or their gut. Often they are junior (many times an analyst at the firm) and are afraid of looking bad to their bosses. They are looking for proof points: proof that you have some traction, proof that there is a market, proof that you can scale. You need to provide these proof points. It’s not good enough that you are a smart team and will figure these out as you go. If you have a marquee lead customer, mention that. If you have an efficient sales pipe, describe that. Get into your business plan as quickly as possible and back that up with hard data.

Fear of missing the next Facebook This investor is very focused on the team and less so on the business plan. Their belief is that the initial business plan is wrong but a smart team will keep iterating and trying different things until they figure it out. When meeting with this investor, put the team first. Highlight the team’s great accomplishments. Make sure your blog, Twitter and LinkedIn profiles are active and up to date, since this investor will have checked them all before hand and judged you based on what they see. You will need to provide a business plan but don’t dwell on proof points for why the business plan is correct. Instead, spend some time going through your reasoning behind the plan. This helps the investor evaluate your reasoning skills.

This does not mean a VC afraid they might miss the next Facebook will not care about your business plan, or vice versa. At some point everything will be evaluated. This is just what I’m finding right now helps in getting through the initial pitch and on to more detailed conversations. Hope it helps and happy pitching!

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One Response to VC Mindset

  1. Pingback: Who is at fault? The Entrepreneur or The Investor? | Lee Tuck Sing's Weblog

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