As a London based fintech investor, Outward VC Fund are in a fortunate position of having access to a large pool of suitable companies. D’Arcy Whelan is an Analyst with the team, here she gives her insight into how to navigate an investor’s pipeline.
Across our team of six, we see around 1,000 relevant start-ups per year of which less than 1% join the portfolio – that’s a lot of ‘no’s’. If we put ourselves in the founders shoes, its understandably a tough process. However, it’s one that can’t be avoided and so we’ve come up with some recommendations on how to benefit from investor engagement, regardless of the outcome. We have also highlighted examples from founders who we think are worth taking note of, in regards to managing the investor relationship.
The first thing to note is that most VC deal funnels are divided into two buckets: ‘no’ and ‘maybe’. We’ve experienced first-hand from founders that there is value to be made on both sides.
Part I: For those in the ‘no’ camp
I.I : Ripping off the band aid
This step is about accelerating the time it takes to receive the ‘no’. By asking proactive questions you open the floor for instant, honest feedback. For example, after the first meeting, one founder asked us:
“On a scale of 1-10, how likely are you to invest?”
By putting us on the spot, he accelerated the feedback process and left the meeting with clarity on where he stood – an outcome that may have otherwise taken days to get. VCs have nothing to lose by not being firm, founders however have a lot to lose.
I.II: Squeeze every ounce of juice out of it
If anything is unclear upon receiving a ‘no’ from investors, we’d recommend digging deeper (especially if you’ve spent a lot of time with them). The relationship you build and the feedback you take on board can hopefully make up for the time spent speaking to them. The following questions are a good place to start:
- Where can I/we improve?
- Is it a ‘No’, or a ‘Not right now?’ If so, what milestones do I need to hit to re-open the dialogue?
- Is there anyone in your network for whom you think this opportunity would be better suited?
I.III: A lasting impression
As investors we’ve been on the receiving end of all kinds of responses from founders after passing on an opportunity. All are completely justified – no judgement here. However, what we will say is founders who end things on a positive note are the ones we tend to keep tabs on or help in future. The best way to illustrate the power of this point is by referring to examples we’ve come across in the past:
Example 1. Follow-up from a founder after a few introductory calls:
“It is never nice to be told your baby is ugly but I also appreciate that it is also hard to share that news. As a result many don’t bother, so I am therefore very grateful for you taking the time to talk to me this morning as without that detailed feedback, I can’t learn. So thank you. I mean it…”
The lasting impression is threefold: they have clearly have a stubborn determination to succeed which is balanced by the ability to be self-critical whilst demonstrating high EQ – all important qualities in a founder.
Example 2. Follow up email to a major tier 1 VC from a founder in our own portfolio:
We met November last year…You wanted to sleep on it (things do look different in the morning), and decided to pass (‘too small for across the pond’). We have since quadrupled our…
Several VCs have already started to speak with us on our next round. However, admittedly, all I can think about is you.
This is not a love note. I’m looking for a partner with dissent and a true experience scaling companies globally, and who can help us make less mistakes. Rightly or wrongly, my intuition tells me it’s you, and whenever I didn’t follow my intuition – I failed.
This email didn’t change the outcome at that point in time, however this relationship is still very much alive and the answer may one day be a ‘yes’.
Part II: For those in the ‘maybe’ camp
As the funnel narrows, you want to ensure your company not only remains in the race but that it is front of mind. We’ve come up with four considerations that may be useful in achieving this.
Consideration #1: What makes you stand out?
It may be the founding team, the market opportunity or the traction to date. Whatever the answer, double down on it.
Consideration 2: Honesty is the best policy.
Transparency and openness are the most refreshing qualities to see in founders. At the early stage, we invest in, we don’t expect you to have a fully developed business or team. In fact, we need to understand where the gaps are in order to assess whether we’re the best partner to help you fill them. There is no greater red flag than finding out in late-stage due diligence that you spun the numbers, embellished a client relationship or omitted important details (eg. a large director’s loan). It puts the validity of every conversation at stake.
Consideration #3: Persistence pays off.
Every touchpoint is an opportunity to either deepen the relationship and/or incite interest in the business or market opportunity. Some examples include sending helpful information (i.e. research reports, product updates) or even by connecting the dots with another company or investor where synergies may exist.
Consideration #4: Relationships are key.
This extends to the whole team. There may be a scenario where you’ve been in touch with a junior member of the team who isn’t upselling you or vice versa with a senior down selling it. Try to get as much buy-in as possible.
Relationships are a good note to end on. Let’s not forget that this is a two-way street. It’s just as important for the founder to use the process to learn more about the Investor and assess if they are the right fit. After all, these are the individuals who will be partnering with you in the long term. Financial capital is just one of many elements