How to Find, Pitch & Close VCs [After You Bootstrap]
:: By Frank DeGeorge, YouStake ::
Almost one year to this date, we launched my startup, the first full-service sports staking/sponsorship marketplace, enabling the masses to invest in skilled players for entry into events. For nearly all of 2015, our tech startup was bootstrapped, and believe it or not, my co-founder Nick and I, continued working our “9-5” day jobs.
Our new business was our passion, but as first time tech startup founders, Nick (who is also my brother) and I knew we needed to bring in some expertise. So we put a job posting on AngelList, and after dozens of interviews, we finally brought on Scott Hansbury to the team. Scott had the experience in startups, from idea to exit, that really made a difference rounding out the team. He was also the only person working full-time, and on equity only, until we received our first “VC” check.
In Jan. 2016, we began the four-month journey with one of the most prestigious startup accelerator programs in the world, 500 Startups. Along with our acceptance into the program, we also received an investment, which you could argue was our first “institutional” outside money. What I’d like to focus on for the rest of this article though, is how I found, pitched and eventually closed other Venture Capitalists, or VCs for short.
Find Them First?
If you build it, they will come. Sounds cliche...because it is. When we launched in our first vertical of Poker, we began generating revenue from day one. From June 2015 through Dec. 2015, our growth was steadily rising, enough to catch the attention of 500 Startups. Then, once we truly started digging in to fine tune our product, our growth really exploded. From Jan. 2016 through May 2016, nearly all of our metrics (users, gross merchandise volume, purchases) had doubled and some even tripled. You would think that our phones would be ringing off the hook from investors, but it wasn’t. The harsh reality is, no one knows about your success, until you tell them. Yes, we had many inbound investor emails and calls, but this was partly because of our affiliation with the accelerator. So, as the CEO and person in charge of fundraising for the company, I had to learn the hard way the first step in raising money from VCs:
Step 1) Build a targeted list.
One way to do this is by researching your competitors, and find out who they raised money from. I used things like Crunchbase and AngelList to start, and began writing out all the investors in my industry (sports, marketplaces, etc). There are many tools out there to keep your list clean, such as AirTable and FounderSuite. You should set a goal of say 100 investors in your list, and find relevant introduction sources. This next piece is likely the most time consuming, but also the most important.
Let Me Cold Call
If you’re like me, and you are even slightly active on LinkedIn, then you probably receive invitations to connect with random people from all over the world. Most of the time, unless you really know that person, it’s someone trying to sell you services or up their network game. This is the new generation of cold calling...a simple request to connect, and wait for them to accept.
I can tell you from personal experience, this is NOT the way to get an investor's attention. You’ll likely be ignored, like they say “first impressions are everything." So, the next step in successfully raising money from VCs:
Step 2) Find a way to pitch.
Getting someone to agree to a meeting is 90 percent of the pitch. Most professional investors rely on deal flow, and take meetings daily looking for the next big thing. As an entrepreneur looking to raise money, you need to find an introduction to your target investors. The most qualified introductions come from portfolio founders and close friends of investors. A good way to reverse engineer the introduction process, is to talk with founders first, then ask for investor introductions. Other tips are to find back channels and other referrals to keep you top of mind to investors. This goes into the last part of closing VCs.
Sometimes you get lucky, and after a first meeting the investor jumps on the opportunity and wires you money. A lot of times, you go through a series of meetings, until you finally press for a "yes" or "no" answer. Often, you’ll get a “too early” or “we’d like to see more XYZ,” which is basically a "no," but not a "never." In any instance, it’s important to keep your conversations fresh, and explain that what you’re creating will or already has taken off, and the only thing missing is a partnership from a savvy investor.
All of this of course depends on the stage of the company, the round and amount of money you’re raising, and even the space you’re in. But, as a general rule of thumb, the more FOMO or Fear of Missing Out, you can create, the faster you can close the deal.
Step 3) Sign the terms, wire the money.
When I’m pitching an investor, there’s always a series of questions I ask that help me control the meeting and see if we’re a good fit. The questions also help me gauge the true interest level of the VC, which is probably the most important thing to walk away from a meeting with. At the end of each conversation, there is no need to beat around the bush; you should always directly ask “are you interested in investing in my company?”. The faster you can get an answer from an investor, the better of you both will be in managing your time.
Fundraising is a full-time job for any entrepreneur, and I encourage you to take it seriously and with proper planning. There’s a saying I learned as an officer in the Army, on the military decision-making process: the 1/3-2/3 rule; spend two thirds of your time planning and one third executing. And with the three steps laid out here, you should see a higher success rate of closing by focusing most of your time on the list building and introductions phases than anything else.
Our Seed Round isn’t closed yet, but I was able to use this process to close a sizeable chunk of our goal. I’ll continue using these steps, as a rinse and repeat, throughout the fundraise lifecycles, and for future raises as well.