How many VCs, and how? – Lead or not lead
A lot of VCs are just followers, but as an entrepreneur, you need to start the structure of your fund raising with a lead investor. It’s very important to identify with whom you are talking to avoid losing time with followers when you are looking for a lead investor.
To do so, how much are you raising? Do you want one, two investors? (that may mostly relate to their ticket size, and the diversity of skills, support, you expect from your board).
Is there a VC that you click with, and who moves fast? He may very much be your lead. Beware: once you sign your lead, valuation is set (a second VC is not coming to help you get better terms from your first VC, we do stand for each other, and this way of doing will not be appreciated by anyone).
Understanding feedback – Yes but no
Every good deal was a bad deal, taken earlier. That’s why VCs don’t want to say no: the longer an opportunity is alive, the better you can evaluate signs of development and ramp up. Given a choice (a.k.a. no term sheet issued so far J), in doubt, we always prefer to stand-by rather than telling you “Not gonna happen this time”.
It’s important for you to get a clear status and to keep VCs informed about your evolution, as long as you want/need to keep a door open to a term sheet.
Metrics – Short-term metrics, long-term dream
VCs want short term realistic goals, but a long-term dream.
Entrepreneurs should be very careful to give short-term realistic, achievable targets, as the analysis phase could be quite long. On these metrics, it is important to establish trust and reliability: we promise you something that we can deliver. It’s easy for a VC to check the credibility of these short-term goals – they shall get closer day by day, month by month!
On the other hand, we invest in a perspective of “multiple”. To multiply our investment, you need to multiply your potential! That’s why you have to show strong growth perspective – otherwise the VC won’t see the value of your project. Achieving multiples and exiting a company (for an entrepreneur or a VC!) is already hard enough; we cannot bet on companies meant to remain “reasonably sized”.
Analogies – How we evaluate
VCs usually react and provide feedback based on their historical experiences, which are in general linked to a sector they focus in (you cannot know so many things in tech, especially if you want to pick the right projects).
My advice: take the feedback, and take it for something valuable – remember our stats in terms of project seen per year, investments made, exits, etc… We are not bankers, we are tech people providing funds to projects we believe in. Of course, some feedbacks are good, some feedbacks are not relevant. And some people might only provide you feedback of one sort J. But overall, it is likely we have seen most of your competitors already, so give it a shot, at least.
The same applies for your board. Given that you admit a VC may come with his or her tech experience, the question for you is not only about money, reputation of the VC; it is about the experience they bring to your company and your board.
Keep in touch – It makes us more relevant to you
Once we enter a relationship (pre-, or post-investment), VCs need regular contact with entrepreneur to help. You are the entrepreneur. Day-to-day, on the field. Changes happen in days, weeks, not months, especially at the beginning of your company.
Meanwhile, we are seeing three new entrepreneurs, taking care of 5 to 7 investee companies (average in France), while dealing with a difficult board in London on one of our investment, and agreeing to an exit (a multi-billion exit, of course) in another one in Paris. So, we are dealing with several topics, and need to be helped keeping track of what matters in your company meanwhile, knowing that, by default, we do not have access to any other information than the one you provide us with.
You will have to keep us posted, for example for the board meetings once we are your investor. The more regularly you do it, the more our relationship is not a pull (“hey, I have not received the board decisions yet, and it is in 3 hours!”) but a push (“hi, I saw your latest report and figured you’d be interested in meeting XXX, an entrepreneur I worked with 3 years ago and who got outstanding results on his SEM efforts”).
Also, let’s talk about the bad. When problems happen, natural instinct is to decrease the number of contacts with your VC. Example: “People don’t pay me, but if I tell my board, I’ll look weak, and they will blame me for it”.
On the contrary, you should open up and invite board members to share your problem so that they find a solution. Remember: we’ve seen it before, and your success is our success – we want to help you as much as possible.
Rule of thumb, by the way: never announce a bad news during a board, but before the board meeting, one-to-one with your key board members… Don’t lose the confidence of your VC, he’s there to support you in bad times, not to worry about what you may or may not tell him. Trust brings trust.
Conclusion: a relationship between a company and a VC builds over time, you need to invest in it. And the best ingredient for a long-lasting one: trust, and therefore open communications, regardless of the news, good bad (actually, especially bad).