How VCs assess founders
One of the first things a VC will do when you approach them is to check out who you are. Not your company, but YOU. It's never been easier to interrogate someone's profile with just a few clicks online. Yet too many founders are practically invisible in the public sphere. Other than a minimalist LinkedIn bio, they are a big unknown. Investors don't like unknowns. VCs and other institutional investors have access to incredibly powerful datasets that can aggregate a profile within seconds. Other than all the obvious publicly available data from such sources as Companies House, this aggregation sucks in your social media presence and virtually everything you have authored. But there is no guarantee that such a profile paints the true and complete picture of you. Founders need to be increasingly proactive in managing their public image to ensure that this inspires investor confidence from the very first contact.
As they investigate your background, VCs are going to be particularly interested in triangulating your public image with what you are saying to them in private. Are you truly a thought leader? Someone with a conviction? An agent of change? See this as an opportunity. There are many ways to build - and control - a public image. if you're a serial entrepreneur with some big exits in the bank, the press will be happy to do some of your work for you. But if you're still working your way there you'll need to roll up your sleeves. One of the most effective ways of shaping your profile is to write a blog, have some articles published, or at the very least develop a regular online presence. This all takes time, so the sooner you start the better. Don't be worried about putting yourself out there - writing can be cathartic. And this is not such a big hill to climb as you might think. In the words of @david_perell, good writing is just bad writing with lots of editing.
During due diligence, the level of founder evaluation shifts up a gear. As executive coach Julius Bachman highlights in his recent article, the best VC firms employ a 2-stage process: 1/ the individual stage (looking at the founder/founders as individuals) and 2/ the group stage (how well they work together, what are the team dynamics?). Bachman has researched how several leading VC firms evaluate founders and the results are illuminating. There is an increasing focus on 'behaviours and abilities', underpinned by high levels of self-awareness. This is far away from the traditional resume of ' business experience and achievements'. Such a mindset is epitomised by Camilla Dolan, General Partner of Eka Ventures: “We don’t see past success as a predictor for future success. Our assessment is focused on trying to understand how fast someone can develop and adapt to different situations and levels of complexity.”
[For further insights on founder diligence, read this second article from Julius Bachman]
Having a vision can blind you to the problem
Entrepreneurs are often cast as visionaries. They can see a different future for the world, a country, a market. Some are able to harness their personal charisma and energy to build amazing teams and products that reshape or create entire industries. Steve Jobs was one such visionary. But in the formative stages of company building, investors are wary of founders that claim to be driven by a particular vision. Having a vision is no guarantee of being able to build a business to deliver it. In fact, vision obsession at too early a stage can lead startups to crash, pursuing a dream that is just not viable in that particular time and space. Instead, investors seek startups that are obsessed about solving a particular problem. A problem that is big, addressable, and ideally flying below everyone else's radar.
VCs, in particular, know that the bedrock of a successful startup is a clear problem/solution thesis. Those that are then able to prove the thesis and generate real traction are on the way to product/market fit. Then, with the first product starting to scale, they expand the product or add in others. It seems to be at this point when, for most, a vision truly starts to emerge. Armed with early evidence of demand and customer feedback, the bigger picture, the vision, starts to come into focus. In fact, as the products roll, it can become an imperative, helping to guide thinking to enable important trade-off decisions. The vision in this sense becomes 'retrofitted' onto the business, as if it were there from the beginning. This is a less romantic version of how a vision becomes a reality, but it's one which is more fundable.
The vision-obsessed startup can miss the real problem to solve. The starting thesis is no more than a solution thesis: 'Build it and they will come'. All eyes become focussed on the product rather than the customer because it is often easier to start building than validating. 'Internal work' is favoured over 'external work' and this can spell trouble. The product is 'released' but there are few, if any, takers. USPs that appeared relevant at the beginning of the development are ignored by the market. Competitive differentiation is weakened as others arrive and is not sustainable over the long haul. To be clear, having a strategic vision from the outset is not in itself a weakness. It is more the inability to develop early milestones that require customer validation before further steps are taken. Then, as the insights eventually coalesce to form a truer vision, it's the ability - and the courage - to alter course. This creates a more credible narrative for investors to buy into.
Crafting the cold approach email
Your investment deck is ready. You've created a qualified list of investors that should be well-matched with your startup. After circling the ones where you hope to get warm intros, it's likely there'll be many remaining that you'll need to approach with a cold email. The easy part is figuring out a basic structure that you can repeat: Start with who you are and why you're emailing. Concisely outline the problem you are solving and the solution you are creating. Then provide evidence of progress, customer traction, and some key metrics. Explain the stage you are at and what your needs are to move to the next stage. Finally, ask for the meeting. What could be simpler? But this 'core' content is not going to be enough. With VCs receiving hundreds of such email approaches every month, what will make yours stand out? Why will yours be that 1 in 100 email that receives further attention? The answer lies in the personalisation of the email.
Personalisation isn't the cursory 'topping and tailing' of the core content. That is no more than a glorified mail-shot that will likely just get binned. Real personalisation links your interests to theirs in a way that creates relevance and inspires action. A simple 3-point framework we love provides a helpful guide: Authentic — Reference something real and recent. Research one or two talking points that demonstrate you have dug into their fund, their portfolio, and their personal investment interests. This shows you have identified a potential fit. People — If possible, mention names of people they know and how your insights link to what they have said or done (publications, blogs, tweets..) or an investment they have made. Point of view— don’t hold back, be confident, express emotion, wrap around an insight to justify. All of this takes time and it's why creating a cold approach email is a task often underestimated by founders. There is no substitute for solid groundwork here.
Mike Edelhart is Managing Partner at Joyance Partners and in his recent article he reminds founders that the cold approach email will reveal key aspects of the personality of the sender. Mike suggests 3 simple rules to convey the right image: "Respect the recipient. Don’t focus on what you want, focus on what your recipient may want or need. Do your homework on the person, and then demonstrate that you have. Be civil, humble, and respectful. Every first note is a first date. Treat it that way, if you want a second date. Respect yourself. Winners don’t boast, they achieve. Strong leaders don’t yell, they teach. Great entrepreneurs don’t preen, they quietly sweat the details. People who excel ask questions, rather than shout from the hilltops. People you want to know show more interest in you than themselves. Respect the process. Our team invests in startups for a living and because we see it as the best possible application of our time and talents. You should too. Be serious or be gone."
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