Some founders may hold the view that the time necessary to keep the venture capitalist in the loop is better spent on the pressing tasks of acquiring customers, running the business or upgrading product offerings. This is a misconception. Developing good lines of communication with venture capitalists is vital to ensuring that any partnership that may materialize is the best possible fit. In short, it can save time, effort and grief down the road. Transparent and effective communications will give you a positive image and may result in side benefits, like introductions to potential partners, clients, even employees. Remember, venture capitalists are well-connected people.
Making the effort to communicate positively with your venture capitalist doesn’t really require large chunks of your time, won’t cost you money or require a lot of effort and by doing this you won’t have so much of your attention drawn away from the nuts and bolts of running your business during a capital raise because you have already established the relationships and communicated your goals with the VCs. This frees you from a last minute scramble and allows you to remain focused on running things.
Having an organized approach and keeping a few notes when talking or meeting with your VC or prospective investors will save you time in the future. Here are some tips to set you on the right path:
Have a purpose driven conversation and take notes
These are things you should note:
* Contact information
* When does the firm invest, what sectors, at what stage (and why?)
* Is the firm value-added beyond capital?
* What is their location?
* Do they insist on a board seat?
* Is their participation limited to lead investor in a round?
* Does their portfolio include companies in your space? Who are they?
* What level of interest does the firm hold in your business–now and later on?
This doesn’t consume a great deal of time and deliberate fact-finding can serve you well in several ways:
* Time is saved by avoiding repeating the same questions if you decide to pursue follow-up conversations later.
* If the firm should contact you later and your business no longer meets their criteria (example: they do Series A investments and you need a Series
B) you have that information prior to scheduling a second call.
* You create a positive impression by remembering the specifics from prior interactions.
Post conversation; enter your notes into a spreadsheet so they can be easily updated in any subsequent conversations. When your board decides the time to raise money is now, you’ll be grateful for having done this.
Establish a point person within your organization
In the same vein of staying organized, designating a point of contact, ideally your CFO, to receive the calls from interested investors, both introductory and follow-up, will serve you well. The person chosen should also bear responsibility for aggregating information from other team members who may have had informal chats or spontaneous conversations with investors. This information should be included in the spreadsheet mentioned above.
Remember, this is not overly time consuming considering its value as a resource.
Publish a newsletter
Very few Founders/CEOs have started a newsletter dedicated to the interests of potential investors. I’m not talking about a newsletter for customers; this is a very different audience. If you are doing it! Super! If you haven’t found the time, I would encourage you to, at the very least, pull together a tailored quarterly or biannual note to send out to a “friends’ list which includes potential investors. Here are things you might include:
Founders tend to keep these numbers close to the vest and I get that … investors get it too. That doesn’t prevent you, however, from putting something out there to ramp up investor interest.
Consider: We ended the first quarter of 2018 with revenues in 7 figures, a 22% increase over the year-ending 2017—though not overly specific, it can really help readers visualize the direction of your company and it is also helpful if you are trying to do a raise.
If you’ve recently boarded an interesting client this is a great place to brag! It can also remind investors of the reasons your product is being chosen ahead of your competitors’. Keep any legal disclosure limitations firmly in mind.
New hires can serve a similar purpose, especially if you’ve hired someone away from a high profile competitor. Or, for example, that you have hired a new sales manager to oversee your new team of inside sales reps, this tells potential investors that you are growing. Expects some phone calls!
Never lose sight of the fact that investors are well-connected people. They cast a big net. If you have some critical vacancies in your organization that need filled, you couldn’t find a better place to let that be known.
Does your company or do your employees participate in startup competitions or charity events that you could highlight? Did your company receive any form of local, regional or national recognition or award? Investors are interested in these sorts of things. It’s telling of your enterprise and your employees.
I’m currently in the accounts receivable factoring industry and I engage with more than a few founders, entrepreneurs and businesses. Many of us have been down this rocky road of raising capital and I appreciate the opportunity to share with you some of what I’ve learned along the way.