“Ideas are the beginning points of all fortunes” said Napoleon Hill.
“An idea that is not dangerous is unworthy of being called an idea at all” said Oscar Wilde.
Is your idea big enough to create a fortune? Is your idea dangerous in the way it disrupts the competition? If so…you may be thinking big in the way that Venture Capitalists do. But how do you gain access? What’s the right approach? How do enter the old boy’s club without looking like a uncoordinated 400 pound ballet dancer on “So You Think you Can Dance”?
That’s exactly what we wanted to know from Mark Suster. Mark Suster is a general partner in GRP Partners, a leading venture firm specializing in startup and early stage companies. He’s also a respected two-time entrepreneur who sold his last company to Salesforce.com. As a VC Mark spends his days working with early stage firms and guiding them toward scale. In an effort to be helpful to entrepreneurs beyond his portfolio and the west coast companies he advises, Mark blogs at BothSidesoftheTable.com
Mark, many VC websites have a tab that will tell you that you can submit your business plans to enquiries@vc_company.com or some similar generic email address. But does it really work?
The short answer is “no” – don’t waste your time. I know some VCs would take issue with this and somehow I’m sure that there are some success stories with this method but trust me this is worst way to approach a VC.
Why is it a bad idea?
Most VC firms receive an unbelievable number of business plans every year. It really is hard to process them all effectively so some sorts of filtering techniques develop. I remember asking for advice from a law firm in 1999 (before my first fund raising exercise) the best way to approach VCs. He told me that “most VC’s will figure that if you are truly an entrepreneur you’ll find somebody skull and bones that knows them, develop a relationship with that person and find a way to get them to introduce you to the VC. If you can’t do that then you’re probably not really an entrepreneur.” It sounded a bit like an “old boys club” to me.
It may sound harsh but in reality I think it’s true. If you can’t get a warm introduction to a VC then how on Earth are you going to break down the doors to get to the VP of Sales, Biz Dev or Marketing in the organization that you’re looking to sell your products to to or develop partnerships with? If you’re not assertive and creative enough to get through a VC’s doors then how are you going to get the most sought after journalists to write your stories or the most skeptical buyers to part with their hard-earned cash? And we expect you to be able to persuade potential employees to join your cause when you can’t pay them properly, they’ll need to work crazy hours and you’ll always be 9 months away from bankruptcy. In short, in most cases being an entrepreneur requires a healthy dose of Chutzpah.
How do you suggest the entrepreneur gets started?
When I speak on this topic in public I like to remind people that when I raised capital there were no easy ways to figure out who were the friends of the VC’s (let alone who the VC’s were in the first place) but in 2009 you have all the social networking tools: LinkedIn, Facebook, Twitter or even just plain old Google Search. It’s pretty darn easy.
But aside from the obvious social graph information I’m going to give you a few tips:
1. Start-up oriented, corporate lawyers.
VC’s deal with corporate lawyers all the time. We deal with them when they represent us in fund raisings and when they represent the companies that we invest in. We spend time with them because they often attend the board meetings of our portfolio companies and we work with them when we sell our companies or implement stock option plans. In fact, most great early stage corporate lawyers run in exactly the same circles as we do. They are often one of the best sources of early-stage deal flow for VCs because one of the first companies most entrepreneurs do business with is their lawyers who incorporate their companies.
2. Start-up focused recruiters
I was recently at a breakfast for the mentoring program that I founded (www.Launchpad.LA) and I mentioned the idea of our group spending time with recruiters. Many of the guys moaned. I was surprised. I’ve always loved spending time with recruiters. Not just because many of them are very social people by nature but also because they know everybody. And if they’ve been doing it a long time they know them in ways much better than most of them ever will. And the best recruiters definitely know the VCs. I know that recruiters can get a bad rap because there are so many bad ones, so your job is to identify who are the best. How on Earth do you do that? Simple: contact the CEO’s of local entrepreneurs and ask! (see point 4 below)
3. Portfolio companies
Let’s say you’ve identified the VC firm you want to approach and you’ve gathered a bit of information on them but you still don’t feel you have the best person to introduce you. The absolute best place to start is with the CEO’s of their portfolio companies. I’m always surprised that more people don’t do this. Every VC lists who their portfolio companies are so it’s pretty easy to figure out a few CEO’s who know the VCs (and the companies websites normally list who are on their boards so you’ll even know which partner did the deal).
OK, so if the VC you want access to is Union Square Ventures you probably don’t want to contact Twitter or Boxee but you could easy contact earlier-stage, less known companies. Obviously when you do you should be respectful of their time and find ways that you can be of help to them also. But the best approach is to ask if you can ask for a 30-minute coffee slot as you’d love to get a small amount of their time to learn a bit more about their experiences in fund raising. If they accept – stick to your limit of 30 minutes and start a relationship that will hopefully pay off well beyond fund raising.
If you’re not yet in the comfort level to start calling the CEO’s you might also consider calling the other co-founders who are not CEO. They are often listed on the websites. Once you’ve had the chance to meet with 4-5 portfolio companies in a time-respectful way one would hope that you developed good rapport with at least one of them (otherwise, revisit the question – am I really the right person to be an entrepreneur?). At the right point you might consider politely asking them to intro you to their VC. A warm intro from a portfolio company is the single best source of lead for any VC.
4. Entrepreneurs in general
Another very obvious source of information is just to network as widely as you can with other entrepreneurs. Founders often get so bogged down in getting their products out the door, raising money and hiring staff that they don’t spend enough time networking more generally. The best source of advice in general on how to build your company is from talking with other entrepreneurs who have recently done it or are currently doing it.
Specifically they will be able to give you tons of information about local VCs and their experiences pitching them. You can’t rely on the information of the first one or two you speak with but if you meet with enough entrepreneurs you’ll be able to triangulate enough to figure out the good guys and the bad guys.
SO … now that you know how many plans we get from portofolio companies, lawyers, recruiters and entrepreneurs in general (not to mention business school classmates, other VCs, professors, etc.) … still think your plan randomly submitted has a good shot of getting you a meeting? (smile)
Thanks Mark!
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