What To Know When
Approaching A VC
A Primer, and a few important tips.

What We Will Cover
1. VC Econ 101 – Know Your Customer
2. Profile of a Hot Deal
3. The Stage/Company Match
4. Getting a Meeting
5. Pitch Essentials & Common Pitfalls
6. The Match Making Process
7. Some General Advice

Part I: VC Econ 101
Raising capital is a sales effort, so you need to know
what motivates your customer to buy.

The Single Deal Axiom
“Your company must exit at a price
that repays your VC’s entire fund.”
 Typical VC funds are $200 million in size.
 Typical VC stake at exit is 10-20%
 Since Profit = Exit * %Ownership…

Your Company
Needs to Sell
for $1-$2 Billion

The “Limited Capacity” Axiom
“A Partner in a venture firm makes 1-2 investments per
year. So you can’t just be good in their eyes, you have to
be top 1%.”

Part II: Profile of a
$Billion Exit Prospect
(AKA a “Hot Deal”)

4 Attributes of Hot Deal
Uber Geek Proven Friend of Proven
Wunderkid Executive the Firm Entrepreneur
1.Highly Backable CEO

4 Attributes of Hot Deal
2. Unbounded Market

4 Attributes of Hot Deal
3. Frictionless Growth

4 Attributes of Hot Deal
4. Scarcity

Part III:
Matching Investor
with Stage

What is “Early Stage”

“Backable Early Stage”
1. A Company with no business traction, but a great team
and really amazing concept.
2. A Company with really amazing business traction and
a team that can execute.
3. A Company with some exciting early traction and a
solid team.
IMPORTANT: Nobody but friends and family will fund a
business with an unproven team and no traction!

Who Should You Target?
Proof Points
Team
Strength

Part IV:
Getting a Meeting

Get a Warm Intro

Reach Out Over Email
 Send a short thoughtful note
 Why they are a great investor for your company
 Why they should be excited to meet with you
 Attach a slick, scaled down pitch (10-15 slides) with the
essential elements.
 Send these emails Tue-Thu.
 Partner meetings are on Mondays, and Friday emails get
buried.
 Never send anything important late on a Friday

Be Persistent
 Anyone on the buy side in finance has a great barrage of
incoming. Assume that your first note was glanced at on a
smart phone and forgotten.
 Use your warm intro connection more than once and as a
back channel.
 Good News – Getting a Meeting is by far the easiest part of
the process. The hurdle rate for a meeting is low.
 Bad News – Getting a meeting does not mean an investor is
interested. It just means they are allowing for the possibility
they might one day be interested.

Part V:
Pitching Tips

Must Have #1: TAM
Total Available Market = TAM
TAM = ($ from one cust.) x (# possible cust.)
If you are selling accounting software, your TAM is not the
entire software market. It is (the number of firms that
would possibly choose your software) x (their total
population in the world.)

Must Have #2: The Ramp
 Your ramp exceed $40 million in year 4

Must Have #3: Competition

Must Have #4: Concise Pitch
 Plan for 30 minutes of presenting time. If you plan to
talk for an hour, there is no way on earth you will finish.

Other Important Tips…
 Avoid Slides that look like this one. There are way
too many words on this slide. It is boring as hell, and
the title doesn’t make an affirmative point.
 Never discuss valuation. Say how much you are
raising, say if it is a note or equity, but don’t presume
you are in a position to dictate terms.
 Pitch to a Partner. It is always best to pitch directly to
a check writer. If you approach an associate and get
turned down, it is very hard to recover.

Your Goal is to get a
2nd meeting. Get them
excited, and don’t bury
them in detail.

Part VI:
The Match Making
Process

How they choose you
 Market Risk
 Technology Risk
 Execution Risk
 Financial Risk
 Chemistry
 Vision Alignment

How you choose them

Size Matters
 Bigger is not better
 They can take longer to make decisions
 They have more complicated decision making which
makes it less likely they will say yes
 They tend to “upgrade the team” earlier.
 They always play for upside, and tend to turn down what
the founders would consider attractive acquisition offers.
 The partners are often spread thinner, so you might not
get much attention post investment.

Size Matters
 Taking biger fund money also has advantages for the
founders:
 Larger firms are great for deals that require large
amounts of cash rapidly
 Pharma
 Semiconductors
 B-C plays
 Large brand name funds attract follow-on capital and
executive talent
 They can afford to pay up for deals they really want

Choose the partner
not the firm
 Shared vision of target market evolution.
 Personal Chemistry
 Right mix of help and patience
 Know when to ask the hard questions
 Know when to leave you alone
 History of success –> has clout with partners.

Experience Matters
You don’t want this guy You want this guy
(even after a 31-0 loss to Buffalo)

Lastly, Some
General Advice

Talk to other Entrepreneurs
 Go to meetups, network, network, network
 Information is power and the more you know about the
people you are speaking to the better
 Are they knowledgeable about your space?
 Have they done a lot of deals already from their current
fund?
 Who are the decision makers and how do decisions get
made (firm led or partner led)?
 With whom do they typically syndicate?

A Serious Commitment
 Once you take investment this is no longer your
company no matter how much you own
 With great dollars comes great responsibility
 Share holders
 Employees
 Management team career paths

A Serious Commitment
 You have committed to do great things
 Once you take VC your new found friends have very real
and very big expectations and its your job to meet them
 No small ball.
 Raising VC is an enabler not a milestone
 Many entrepreneurs think that once they raise VC they
have made it!
 Your business is probably more risky now than before you
took investment capital

Scott Johnson scott@navfund.com
Jim Schoonmaker jschoonmaker@everyscape.com
Matt Brendzel matt.brendzel@generalassemb.ly