Raising money? Get a referral first!
April 15, 2009
You have prepared your elevator pitch and your ‘deck’ so you are ready to set appointments with VCs, but no one will return your call. First, DO NOT SEND your business plan. Why not? David Cowan of Bessemer Venture Partners explains, “Nothing slows down a VC as much as a comprehensive business plan.”
Oh and DO NOT ASK a VC to sign an NDA. Ryan explains, “Asking a VC to sign a NDA is tantamount to splitting 10’s at the blackjack table. You just don’t do it. In the least, it will show that you do not understand the mechanics of how VCs operate. At worst, the VC will burn your NDA and dump your submission in the trash.”
My Advice? Make your own VC Referrals!
You need a referral to get most VCs to return your call. If you are trying to raise capital from VCs you will need to talk to them over the phone to a) gauge their interest in your business, b) see if your business philosophies mesh and c) to schedule the ever important face-to-face meeting. When I was in money raising mode in the late nineties there were over 1,000 venture capital firms across the United States. I must have talked to more than 100 of them, scheduling meetings with perhaps 50 different firms over a six month period. Less than 10% of venture partners I called would return my call without a referral. With a referral I got a return call around 80% of the time.
Today, lots of people call me and ask, “do you know such-and-such at such-and-such venture firm, I need a referral.” In some cases where I know both the entrepreneur and the venture partner I will make a call to grease the wheels. In other cases I may just say, “you can use my name and explain that I recommended you call.” It all depends on how well I know the entrepreneur or the VC. Bottom line, in my experience, without a referral you aren’t very likely to receive a return call. With a referral your success rate will be 50/50 based on the quality and type of referral.
For those of you who don’t know me and need a referral to a specific VC I recommend a simple way to “Make Your Own VC Referral.”
- Step One: Determine which firms you want to talk to. Based this decision on which firms have previously funded deals in your space.
- Step Two: Figure out which partner at your target firms you want to work with. Based this decision on which partners managed the deals you used to decide which firm to call.
- Step Three: Contact the CEOs of the companies the VC partner funded. Let the CEO know that you are considering working with one of their VCs and suggest that you plan to talk to the partner they work with. See if he will answer a few questions about his experience with them. Usually a CEO will return your call very quickly. Ask him real questions that might help you determine if, in fact, you really want to work with the firm and partner you found on the Internet. Hint: not every VC is fun to work with.
- Step Four: Contact the VC partner (i.e. leave him a message) and explain that you had a chance to talk to such-and-such CEO of his portfolio company. Tell him that based on that conversation he sounds like just the sort of investor you are interested in working with. Ask him if he would be interested in getting together for coffee to discuss your business. More often than not you will get a return call.
Get it? By following these simple steps you can create your own referral. Of course, don’t be deceptive, the VC will soon realize that you don’t really know his CEO and that is fine. You are obviously the sort of business person that does his homework. You are just as concerned about him as he should be in you and your business.
One side note, if you ever see that “submit a plan” button on a VCs website run away. NEVER, EVER submit your business plan blindly to a VC. You don’t want to be ‘that guy.’ Always send your plan to a real person, someone you have actually talked to. It would be like putting a “Submit Termsheet” button on your website. If you actually got one from someone who obviously knows nothing about you would you take it seriously (assuming you can make payroll next month). Good Luck!
