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Venture Capital (VC) firms evaluate countless pitches from ambitious startup founders. The stakes are high with entrusted money from a sophisticated collection of people and institutions.
“No” is by far the more frequently used word.
So what makes them say yes?
To a child, a magician is whimsical and beautiful, a mystical person that pulls fabulous objects out of thin air. And for many entrepreneurs, A VCs decision to invest can be just as magical. But there are secrets to venture capital just as there are secrets a magician keeps. But when you know the slight of hand, the little tricks that occur behind the VC firm’s closed doors you can better prepare your pitch and be ready for the glitches.
VCs as Individuals are not that Diversified
While a VC firm could be very diversified, the average individual VC partner only participates in one or two deals a year. This means they need any deal they work on to really work. They want to risk as little as possible and want to be completely sure of who they back. That’s why you as an entrepreneur need to have everything organized. You must be sure of your startup and make sure the documentation meets all the requirements. You want all your ducks in a row when you make that special pitch.
All VCs Answer to Other Investors
Realize that every single VC has other investors to report to. Only the very top VCs don’t have to answer to their limited partners (LPs.) That means most individual VCs have to sell a project, just like you do. In fact, they may have more selling to do than you do because they have to convince about 15 other investors, whereas you only need to convince one.
Smaller VCs May See eye-to-eye but….
A small VC can see your needs, empathize with you, and it may even be easier to get funding from him, but what are the consequences? In most cases, the small VC is easier to convince but because they can’t write those large checks, they need to buy a lot for a small price. In contrast, a larger VC can fund a larger amount, but they care less about you the entrepreneur. Target the type of VC that best matches your growth needs.