I recently got an email from a friend who had been approached by a well known VC. He sent me an email asking whether the approach was real and whether he should take it seriously. Here is the email he received (reprinted without names with his permission).
I hope all is well. I’m an investor at [Big Name, Large Fund VC] and recently came across [Your Company].
It looks as though you’ve built a very interesting business, and I’d love to spend some time getting a better understanding of your future plans for the company and if there is an opportunity to partner with [My Firm].
In case you aren’t familiar, I’ve attached a brief overview on our firm. [It's big, well known & we've invested in all of these really cool companies]
Do you have time for a half hour conversation over the next week or so? What fits your schedule?
Looking forward to speaking,
My response was:
“He’s an analyst, which means he’s very junior – probably 24. He’s on a fishing trip. No reason not to call him but I wouldn’t get too excited about it. Sorry.”
I know the firm well and I know the entrepreneur & his business well. There is no chance they’re going to invest and it’s not even a close match.
Why do VCs send generic outbound emails like this?
Many of the growth equity firms have had outbound dialing programs for years. Growth equity firms typically target profitable businesses that are often not technical in nature. These kind of companies were seldom startups. Perhaps outbound dialing / emailing programs worked well for growth equity firms in their core business. They must be trying to cull through large databases of mid-sized traditional businesses and trying to find deals before they’re spotted by investment bankers and flogged to everybody at once. Often these businesses have little or no press so it’s hard to tell what they’re doing and how well they’re performing.
So I guess with the high volume of businesses that they had to track and the large fees they were earning from their fund sizes having exploded they were able to hire tons of 22 year olds to pound the phone for 2 years before going on to another job. Classic boiler room stuff. This obviously has worked for them or they would have stopped doing it long ago. I’ve spoken to many of these “outbound dialers” and in almost all cases they said it was “a necessary evil” to get into the trade rather than a “worthwhile experience” in which they learned a great deal about entrepreneurship, startups or any given industry.
As a former startup CEO I fraking hated receiving these calls. Some young kid is calling me and clearly reading from a script and typing my answers like mad in the background to enter into some database that will be mined later. What a waste of my time. What disrespect they show founders / CEOs with these programs. The actual investment professionals (partners) are too busy to call companies that they’re interested in so they basically outsource it.
But how can you really outsource judgment to young, smart people who have often never worked in businesses? If the goal is simply to get the basic details (revenue, customers, staff numbers, prior funding) then no judgment is required. But if that’s all that they’re after then entrepreneurs should definitely be wary of taking these calls.
I have nothing against these young people – the dialers. They are often from the best universities: Harvard, Stanford, Wharton, Princeton, Yale. They are at the tops of their classes and want to get into private equity or venture capital some day. They’re willing to put in the hours pounding the phones and learn so that their CVs will have the top name private equity firms on them to get them back into the top-name MBA programs to come out and try and make investments for real.
I wish this awesome talent would be used to work for a startup so they could have more empathy as an investor down the line (or maybe they’d love it so much they’d stay at startups!).
But where this has really crossed the line with me is when they are database dialing startup tech entrepreneurs rather than growth equity businesses. Many of these entrepreneurs are young and impressionable and mistake the inbound attention for real interest. They’re flattered. These founders burn through precious time and divulge sensitive information. The blasé attitude of these firms having young people pretend to be interested in young startups on the hope that out of every 100 calls they might turn over 2 of interest that can be researched further drives me nuts.
And as a founder it was unbelievably obvious to me what was going on and I never wanted to do business with these firms again. So I have to imagine many other entrepreneurs felt the same. I know Jason Calacanis did because he and I have spoken several times on This Week in Startups & This Week in VC about how these programs are disrespectful. So to me they are really just diluting the power of their brands but because many of them have never been entrepreneurs they probably don’t even realize it.
I will never have anybody do outbound prospect dialing for me.
So how do I work with young VC professionals? We have two in our offices: Kelly Hwang & Dave Lin. I can tell you from working with them the past two years that both of them have great insights on various online business segments and I’ll frequently ask their opinions on performance-based marketing, eCommerce (Dave was at PriceGrabber), online gaming (Dave is a fanatic), digital living room, millennial points-of-view, etc.
Often if I’m interested in a company or market I’ll involve them in doing the analysis with me. They’ll make reference calls, call other players in the sector (always being explicit why they’re calling), talk to more team members from the company we’re looking at and do a deep dive on the business model and/or product. I trust their judgment, I value their insights and they have the time, capacity and knowledge to add value to the process. And when a founder or CEO of a startup is spending time with them they know that as a general partner of GRP I have expressed interest in their company and intent in investing if we can convince ourselves that it is a good opportunity.
And that is how it should be.
Dave Lin spent 4+ years inside a startup. He knows what life is like on a daily basis. Kelly is younger. So this summer we sent him to work in one of our portfolio companies in product management on our dime. Our goal was to give Kelly more exposure to what life is like inside a startup and what they do on a daily basis so that he could understand entrepreneurs better when dealing with them from our side of the table. And we’ve decided to keep this role going on a part time basis going forward.
So if you’re an entrepreneur and you get your inevitable inbound emails after your story on TechCrunch or your conference appearance do yourself a favor. Check the management / team page of the VC to check the level of the person approaching you. Make sure that if it’s not a partner you get the sense that the email is hand-crafted, personalized and sincere. Check out The Funded for their firms reputation and ask a couple of friends.
Ultimately if you take the call just be aware that you’ll eventually need partner support and if you politely turn down the request if it WAS serious interest you haven’t done yourself any harm. If you’re interested in more info on this topic I recently answered a similar question on Quora.
Summary of how to handle the inbound:
“if you get unprompted attention from somebody junior at a VC and you think they’re fishing it’s totally acceptable to politely say, “we’re not currently raising” or “we’ve already had some inbound interest from partner-level people at another VC” or “we’d be happy to meet in person and travel to you if you have a partner that has personally expressed interest.” If said in the right way this shouldn’t put anybody off. If it does then you KNOW they were only fishing”