Getting Access to the Old Boys’ Club (how to approach a VC)

Posted on Jun 19, 2009 | 23 comments


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?

Can you really send your business plan over the transom and expect to get a positive response?  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 bonesthat 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.

And 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 alll 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.

By the third time I was raising money in 2003 I had already learned this trick.  I called two law firms that I knew well and asked them about VCs in the Washington DC area (I was considering opening up US operations for my company and thought we’d raise US capital to do so).  The law firms were able to tell me: who the best VC firms were, who was investing money and who wasn’t.  But even more precise I asked them about each individual partner – who had influence and who didn’t?  Who got a lot of deals done and who was spending too much time on the golf course?  And I wanted to know who had software-as-a-service (SaaS) skills and who didn’t.  I went even further to ask who was active on boards and who “dialled it in”?  (The Funded didn’t exist back then).  Obviously not every lawyer is going to tell you all of this detailed of information, but if you spend enough time with enough lawyers and help them out too (introducing potential other clients) then you’ll definitely pick up at least part of the story.  And most good VC law firms are good at introducing you to the VC when you’re ready.

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 portolio companies, laywers, 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?

  • http://www.docstoc.com Jason Nazar

    Mark,

    you nailed it. I think this is fantastic advice for folks trying to figure out how to meet VCs. I think you next follow up post should be on tips on how to pitch VCs.

    jas

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  • http://www.virtuosant.com David Lee

    Mark,
    Saw this link out on Twitter. Very good information and very appreciated by an entrepreneur such as myself, who isn’t too the VC stage yet but want to be ready when we are. Will also be sending this link to the rest of my team.

    David
    Founder/CEO
    Virtuosant Technology

  • http://www.audiomicro.com Ryan Born

    I’m a big fan of items 3. and 4. They really do work. Thanks for breaking the secret on the general inbox inquiry. It’s so tempting to believe that someone at the firm actually reads the plans that come in through the general inbox.

  • marksuster

    Thanks for the comments, Ryan. There are 2 types of VC firms: those that don’t even read the business plans coming in and those that have the most junior member of staff read them and filter. Either way it is the least productive way of approaching a VC. It automatically elicits the question, “how come this person couldn’t find somebody who knows me?” They won’t consciously say that, but that’s what they’ll internalize.

  • steven

    Interesting BUT haven’t we heard all of this befor, like millions of times. It would be great if someone had something innovative to bring to the table…

    What about all those folks that aren’t anybody yet?
    People who are smart, educated but with no connections, no work experience in the right areas and just really no possibility of simply calling anybody up (seriously who the hell as a young entrepreneur knows any corporate lawyers for heaven’s sake – most entrepreneurs are young people with great minds, ideas and no money working out of their shitty apartments…how the hell would they know anybody corporate?)but still have great ideas that are just ripe to be invested in?

    Seriously, if VCs are so interested in finding great entrepreneurs and investing and most importantly making shit loads of money from these entrepreneurs don’t you think they could spend some money on hiring someone to actually look at their in-boxes??? Seriously, this is a two way street and many, many entrepreneurs are excellent at what they do but do not have the time nor the connections to be mingling and networking since they are actually working on their business ideas, usually with no funds and no backing.

    A realistic approach from VC¨s seriously interested in finding great, innovative ideas, and not simply investing in friends and friends of friends, could be to be open to maybe, just maybe, opening up to the fact that everyone is not like you and that the good ideas could possibly come from the outside. Maybe it is about time you stop acting like stuck up prigs and realize what being a venture capitalist is all about….the operative word being venture and not going the same boy’s club route with the same old peeps…

  • marksuster

    Hey, Steven. I understand your sentiment but I’m just calling it how it is. Better that people understand reality in order to increase odds of success. I would say that even young entrepreneurs should have basic networking skills. How tough is it in a social media world to send out a Tweet or post on FB or LinkedIn to ask local entrepreneurs if they know the best law firm in town? Which law firm isn’t going to take a call from a young entrepreneur who says he’s starting a company and looking for legal counsel (many will work pro bono until your funded if they think you have high potential). An entrepreneur who can’t master these basics probably is a good tech developer but probably not a great entrepreneur. It takes the whole package to succeed. And if it’s not in that individuals skill sets then it is always best to find a partner who is good at networking.

  • http://www.culturalidentity.com slingster

    Stephen, you have just successfully networked with a VC!

    Mark, I once applied game theory to the VC business. You know how it goes: “I will invest in an A team with a C idea vs. a C team with and A idea” and so on.

    For true innovation, such as the invention of the airplane, TV, etc. The result was to always go with the “A idea C team” scenario.

    For derrivate and me too businesses (such as investing in dog socializing network where others already exist)the (A team, C idea (or no idea!) works ok. Of course, in the last 10 years, the VC graveyard is littered with “A teams” that lost billions on “C”ideas and mee too ideas.

    “A” ideas are not easy to spot and often are not intuitive. But if you can find them, even it the come with an innovator that has bad breath and is terrible at public speaking, can’t see snow to an eskimo, etc, game theory says go with him anyway.

    Why? You can always dress him up, brush his teeth, give hom speaking leassons, etc. An innovative idea is much harder to come by and its very hard to make a great idea out of a “C” idea.

  • marksuster

    Peter, thanks for the comments. Marc Andreessen recently did a blog on this topic http://blog.pmarca.com/2007/06/the-pmarca-gu-2.html and concluded that given: market (idea), team, product he goes with market. So the maestro seems to agree with you. I’m less convinced. I believe that A teams with B ideas can spot mistakes in the approach and fix them. B teams with a good idea often get out innovated and don’t recognize when market conditions change. Sometimes if they’re in the right place at the right time they can still win (in a strong wind even turkeys can fly), but I still bet on A teams. As for “C” – I don’t bet on anything C! ;-0 thanks again for your thoughts.

  • Pierpont Poltroon IV, Venture Capitalist

    Stephen, if you’d like me to review your business plan, simply approach me at our 20th reunion or buttonhole me down at the country club. (But not while we’re in Aspen or on Nantucket.)

  • ed

    Mark,

    I don’t agree. How good of a saleman/entrepreneur can you possibly be if you can’t just pick up the phone and call somebody and make the pitch. You can get the VC’s email and/or phone, just do the work.

    You should be respected for finding the right person to call. Expecting someone else to do your job is never a good idea.

  • get back to work

    As A VC, I do the same type of screening on warm intros as cold calls. Warm intros can mean that the management is good at networking but I have seen a fair number of “me too” deals come in this way.

  • marksuster

    Ed, I understand your point of view and sometimes this works. However, I have also learned the in enterprise sales even though you could just pick up the phone and call the Chief Marketing Officer of your target company and make the pitch, sometimes that isn’t the approach that is most likely to get the outcome you want. If you could find a way to get intro’d to the CMO that some call is more likely to receive a positive reception. My point-of-view – maybe right, maybe wrong. But it’s how things have worked in my experience. Thank you for your comments.

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  • http://hullaballoo24x7.blogspot.com rahul

    nice ideas..will surely give them a shot!!

  • http://www.speedventuresummit.org Tim Platt

    Although warm referrals from a ‘trusted’ corporate lawyer catering to the tech and start-up sectors are helpful, they pre-suppose a connection with that lawyer and a favorable recommendation as well.

    The best way to find growth capital is to apply to a venture summit where you can speed pitch your ideas to several investors face-to-face in a single day. One such example is The Speed Venture Summit, the premier speed-dating-style event for fast-growth businesses and investors in New England. http://www.speedventuresummit.org; and follow the virtual discussion at Twitter #SVSNE

  • diego

    I think you are just complaining, either just justify your failures or just to hypothetise.

    If you are unhappy that this article doesn’t bring anything new than it’s probably that there is hardly anything more to know about the subject. If everybody write similar things from their experience than this is basically all you need to know. There might be some other details than change and very – and are basically not so important and there is no point in writing about them.

    The problem of many inteligent people is that they would like to be entrepreneurs and although they might be good with math, they are not entrepreneurs. Sorry to say so, but no matter if you are young or old and you don’t know any investors, lawyers, VCsts etc than the question you ask is wrong – you wonder what should they do if they don’t know anyone. Well, the first step would be to actually get to know “right” people :) How? Well, they are supposedly inteligent, right? So they should find a way…

    And in case you wonder – venture capital is interested in “proper” ventures. A proper venture is such that not only the business idea is good, but also the people are right to do it. People who don’t know right people to get financing are basically wrong to do business – no matter what their IQ is and how good an idea they have. Obviously, they not only do not know people to handle financing, but also others aspects of business. If they had a bunch of marketers, lawyers, PR-specialists, IT guys etc than they would find their way to VC
    This is why VC make themselves available to entrepreneurs and the real ones will get them. Definitely, they won’t look for smart asses to force them their financing or someone who can’t even make it to finding their way to talk to VC

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  • http://www.chicagolawblogger.com Clint Costa

    Couldn’t agree more with (1). First, I’m a lawyer and I’m a good guy to hang out with.

    But more to the point, I am constantly meeting entrepreneurs and angels or others with capital. My angel contacts know I won’t send them trash. My entrepreneur contacts want to gravitate to those who can not only provide legal services, but also make referrals to other quality service providers, including angels and capital matchmakers.

  • Brendan Biryla

    Mark,

    is it true that law firms will work pro bono to help young entrepaneurs sort out the legal stuff prior to receiving funding? I want to make sure I can keep control of my company before I make my entrance into the world of angel/VC capital. Do you know of any such lawyers in West Los Angeles?

    Thanks,
    @BrendanBiryla

  • marksuster

    Brendan, sure there are many. I should warn you that they don’t take on everyone pro-bono – they need to be sure that they think you’re high potential (e.g. you’re likely to get funded and therefore they’ll eventually get paid. 3 in LA that I like to recommend (strictly alphabetical) are Buchalter Nemer, DLA Piper and Stubbs Alderton. Good luck.

  • Brendan Biryla

    Thank Mark!

    I’m very confident in our “fundability”. That said, my team and I are taking all necessary steps to perfect our product before we seek funding and legal council.

    Will keep you posted.

    All the best,

    @BrendanBiryla

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  • James

    Are there many US VC’s that will consider funding a company overseas? I am an American living in Japan and am researching what I need to do for a start-up in Japan. I am curious if American based VC’s are possible investor options to consider as well.

    Thank you..

  • marksuster

    Usually American VC’s will not fund overseas unless they have a presence there. It is hard enough to work with local entrepreneurs, local laws, local competition, etc. But then looking to fund somewhere else only adds to the risk and the complexity of board meetings, etc. You can look for VC’s that have a track record of investing in Japan. Obviously ones like Softbank have invested on both sides of the Ocean. There are also funds that have US presence with “Asia” teams like Steamboat. Good luck!

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  • http://blog.daveworks.net Dave Naves

    mark,
    having been through this exact process merely by happenstance ( in the late 90s with ticketmaster/citysearch) i can say thatyou're exactly right… getting introduced to a vc through a protfolio ceo (especially a really smart/respected one) actually made it very easy. we were treated like royalty when we presented our stuff.

    really appreciate you taking the time to write this… spot on!

    cheers,
    //dave

  • http://www.doubledutch.me lawrence coburn

    Mark, you almost need to add a #5 now…. AngelList.

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