🔥Upside Guest Writers: 5 Wrong Ways to Reach Out to VCs, By Norman Winarsky, & Now Is the Time to Play Offense, By Jeff Bussgang, GP & Co-Founder, Flybrid Capital Partners, Harvard Business School
This week our guest writers are Norman Winarsky, an Advisor to Startups, Author, and Angel Investor, and Jeffrey Bussgang, General Partner and Co-Founder, Flybridge Capital Partners, and Senior Lecturer at Harvard Business School.
Norman is past President of SRI Ventures, which he founded, and which has launched more than 70 companies with a total market value of over $70B.
Norman was co-founder and board member of Siri, which was a startup spun out from SRI in January 2008. Siri has now been incorporated into all Apple iPhones, computers, homepods, and more.
He is co-author of "If You Really Want to Change the World: A Guide to Creating, Building, and Sustaining Breakthrough Ventures," published by Harvard Press. Norman is a Lecturer in Management at Stanford Graduate School of Business, with a special focus on teaching how to create breakthrough companies.
Jeff Bussgang is a former entrepreneur turned venture capitalist as Co-Founder and General Partner at Flybridge Capital (seed stage VC out of Boston and NYC). He teaches entrepreneurship and VC at Harvard Business School. He is the author of Mastering the VC Game and Entering StartUpLand.
This week Norman, in his piece entitles “The Five Wrong Ways to Reach Out to VCs” he gave us his insights on the most common mistakes made by startups when reaching out to VCs. Jeff, in his piece entitled “Now is The Time to Play Offense” explained what startups CEOs and entrepreneurs should do in terms of hiring, fund raising, M&As, product management, R&D, process improvements, now that we are entering a challenging global economy.
Title: The Five Wrong Ways to Reach Out to VCs
By Norman Winarsky
A founder of an early stage startup wrote to me recently. He had reached out to more than 60 VCs through email, and…received not one response.
This was not his only tactic.
He had also asked friends to reach out on his behalf. Without fail, each obtained a paltry “no interest” in response. In his email to me, he asked for more contacts that might be interested. I admit that a quote from Einstein came to mind: "Insanity is doing the same thing over and over and expecting a different result." But this fellow was very bright and highly motivated. He had put together a compelling plan. His venture deserved a chance.
What could possibly be wrong?
When founders seek investment, they often fail to recognize a simple and crucial fact: their modus operandi when seeking investment serves as a compelling example of how they will run their company. Seeking investment is a project like any other. But for some reason, many entrepreneurs fail miserably in this project. For that reason alone, they are often turned away.
Most entrepreneurs fail to put themselves in the shoes of the very VCs they are pitching. As such, they seldom realize how precious time is for VCs given the sheer volume of opportunities they must sort through.
Let’s assume the VCs have a $200M fund and five partners. If they have a goal of returning $2B to their LPs for a 10x return, each partner is trying to invest $40M and return $400M. To do this each VC will normally have requests for funding from perhaps forty ventures a week, meet with about ten ventures a week, and invest in maybe one or two a year. Put simply, most VCs will not be willing to meet with you, to spend their precious time, unless you provide them with a really good reason.
As a VC, I enjoy analyzing how founders reach out to me. This “pre-screen” serves as an easy and effective way to discard opportunities from my overflowing inbox.
Below are the Five Wrong Ways to Reach Out to VCs:
Cold call the VCs
Reach out to the wrong VCs
Fail to research who the VC is, what they have invested in, what their interests are, and what the firm’s portfolio is
Obtain an introduction from someone who knows the VC, but who does not indicate strong support for the company
Reach out without giving a brief but compelling overview of the venture alongside with why partnership with this VC is right for you
Why, you ask?
Well, let’s walk a mile in the VCs’ shoes to see:
1.When you cold call VCs…
You are indirectly indicating that you lack a connection to a warm introduction. Nor are you able to reach out to someone who is a first, second, or even third-level connection and obtain a referral. It’s incredibly unlikely that you don’t have at least one or two possible connections. So, it often appears that you just weren’t willing to put in the effort. No matter what VCs write on their websites, this is likely fatal to your opportunity.
2.When you reach out to the wrong VCs…
You are proving that you did not do your homework. Like most other businesses, VCs specialize in the areas in which they have expertise. Suppose you have a venture that is B2C, but you reach out to a VC that solely invests within B2B. Or suppose you have a healthcare venture, and you reach out to a VC that focuses on internet services. If the VC is considerate, they will make an introduction to the right VC. But the fact that you apparently didn’t understand that you were reaching out to the wrong person serves as a strong negative.
3.When you fail to research the VC’s background, investments, and interests…
You are indicating that you are only thinking of them as a source of money and not a relationship as your partner. When VCs invest in your company it is a strong relationship, like a marriage. Except there’s no chance for divorce.
A VC is not just an investor of funds. They will almost always be a board member or a partner in the growth of your company. They expect to help you in multiple ways: recruiting hires, building relationships with customers and partners, raising your next round of funding, strategizing, and more. The only way they can be effective is to have strong interest and deep knowledge/experience in these areas.
If your venture matches their interest, and you show your knowledge of the investor’s passions/skill set, it is a strong positive. In addition, VCs of course have an ego, and your knowledge of their strengths shows you’ve done your homework.
One caveat is that if the VC firm’s portfolio has a company that can reasonably be considered a competitor, you should not reach out to them. If you do, you might actually be invited to have a meeting, but the primary purpose of the meeting is likely to better understand your company or the market or to help the competitor.
4.When you obtain an introduction from someone who knows the VC, but does not indicate strong support for the company…
I’m often asked by entrepreneurs if I might make an introduction to a VC. But the difficulty lies in the nature of the introduction I am asked to make. If it is simply an introduction, then sure, it’s of value and much better than no introduction at all (as we mention in our first point). I might also make some positive comments about the individual. But I will be sure to let the VC know that I don’t have any depth of knowledge of the venture.
However, if they want a positive recommendation for their venture in addition to their competence/experience, most of the time they don’t realize how difficult it is to help them. To make a positive recommendation I would have to understand the team, their value proposition, their competitors, and much more.
Most of all, I’d have to believe in the company. I’m basically saying to the VC, this is worth your time. And if they trust my judgment, they’d likely be willing to follow up. If it worked out that it was worth their time, my credibility would be good. If it wasn’t worth their time, I might have greater difficulty in the future for them to be willing to meet with anyone I recommended.
5.When you reach out without giving a brief but compelling overview of the venture, and why they are the right VC for you…
When you or your friend reach out to a VC, they are likely to at least read your email. The email request itself should be short! But your email should have a brief separate section for an elevator pitch. This will hopefully entice them to read your deck. The elevator pitch should summarize your venture concept, your team, and your reason for reaching out to them.
There is an art to creating an elevator pitch; working on it can take weeks of effort to write just a few paragraphs. Put simply, it serves as a compelling summary statement of your value proposition. More on this in a forthcoming blog post!
Have you ever experienced this? Do you disagree? Have a question? You can comment here.
Lastly, do you have a breakthrough venture you would like to pitch to Platform Venture Studio? Learn more about Norman here https://os.platformstud.io/faq.
Title: Now Is the Time to Play Offense
By Jeffrey Bussgang, General Partner and Co-Founder, Flybridge Capital Partners; Senior Lecturer, Harvard Business School.
For the past six months, there has been a lot of handwringing about the market downturn. Most everyone has been advising entrepreneurs to marshal their capital, cut costs, and extend their runway. In essence, play defense.
Many investors have been creating a whiplash effect with their portfolio companies. As one of my CEOs put to me, wryly – “In my January board meeting, I wasn’t hiring and scaling fast enough and told to ‘go, go’, go’. In my April board meeting, I was burning too fast and was told to ‘stop, stop, stop’.”
Her experience rhymes with many stories I’ve heard.
But recently, as the dust has settled a bit, I am seeing the best entrepreneurs realize that now is the time to play offense. The "play offense" playbook is well known to many, but hard to execute during a downturn. With the start of the football season around the corner (go Patriots!) and as I have been talking to my most talented entrepreneurs, I have been thinking more and more about what playing offense looks like in 2022-2023. Here’s the six-part playbook I’m hearing:
1) Talent acquisition. A few years ago, it was impossible to acquire talent. The best engineers, sales reps, and growth managers could name their price and had a dozen offers in front of them. Today, layoffs – particularly at growth stage companies – have led to a massive pullback in startup hiring. Thus, some of the most talented people in our ecosystem are suddenly up for grabs again. My best portfolio companies are judiciously adding remarkably talented people on the front lines, taking advantage of arguably the best talent market in a decade. I'm amazed at the quality of the hires that are happening for those who are seizing this moment to pursue outstanding talent.
2) Uplevel executive teams. It’s difficult to admit, but the executive team you were able to attract a year ago may be very different from the executive team you can attract today, particularly if you’ve grown in the last year and have a demonstrably bright future ahead. Like the talent point above, C-level executives at companies that were rocket ships at one point find themselves either laid off or disillusioned with their future prospects. That stretch VP of sales? Go get them. The COO who wouldn’t look twice at you a year ago, they’re begging to have the opportunity to re-engage. Rigorously evaluate the quality and capacity of your senior team and take advantage of the extraordinary executive talent looking for new homes and more promising pastures.
3) Process improvements. Let’s face it, the last few years have been frenetic. Velocity was at 11 for everyone. When you’re moving that quickly, inevitably there will be sloppiness in your execution. Sometimes it’s a gift to have the opportunity to slow down and fix your processes and make sure you’re doing things in a scalable, repeatable fashion. The Navy Seals have a saying, “Slow is smooth. Smooth is fast.” The best entrepreneurs are taking this slower moment to re-examine their key business processes and make sure that they’re running them more effectively and efficiently. Train your interviewers (Who has time for that?! Now you do!) and develop a more careful rubric for developing job descriptions and scoring candidates (side bar: here is a complete guide to interview training from my company BrightHire). Rethink your product development prioritization process. Make sure sales best practices are being disseminated systematically within the go-to-market organization. Fire unprofitable customers -- unsustainable, unprofitable growth is no longer valued. Executing well on this component of the playbook can provide significant leverage in a few short years.
4) Invest in your Product. Speaking of the product development process, if sales are less frenetic and customer requirements (and complaints) less noisy, take the time to invest in your product roadmap. Engineers and product managers love it when they’re “left alone”. Take the time to do deeper customer discovery and requirements gathering. Customers might be more open to participating in beta tests, new feature rollouts, focus groups, and customer advisory councils. This moment in time, where there are fewer distractions, is one where product teams can really make headway on their ambitious roadmaps and take the time to articulate – and take steps towards realizing – their long-term product vision.
5) Execute small, targeted M&A. Every asset was overpriced a year ago – houses, public stocks, startups. With the market correction, suddenly assets are more interesting to acquire. Many, many startups are flailing. Cash reserves are dwindling and they are desperate to find a safe landing. Thus, the companies that can afford to play offense have the opportunity to scoop up amazing teams, customer bases, and platforms. One of my portfolio companies has executed three acquisitions in the last six months at prices that are 2-3x lower than what the selling entrepreneurs were asking for a year ago. Developing skill as an effective acquirer is an important muscle for scaling companies and now is a great time to test out that skill.
6) Financing. There is a ton of money out there looking for great companies to invest in. Funds have raised an enormous amount of capital in the last two years. Never before in the history of entrepreneurship has there been this extraordinary amount of committed capital designated to invest in startups. If you have built a good business with promising prospects, you can stand out from the crowd far more easily today than ever before. Yes, your valuation may be 20-40% lower than you had hoped, but you can still raise plenty of money to buttress your balance sheet and execute more vigorously on steps 1-5 of the “play offense” playbook outlined above.
In talking to my best founders over the last few weeks, each of these elements of the “play offense” playbook is now well underway. The companies that can afford to execute on them, and do it well, will be lightyears ahead of their competitors in the next few years.
You may also like:
🔥 Upside Chat: Dave Hancock, CEO, Apollo (Leading Athlete Management Systems (AMS) vendor)
🔥Upside Chat: Alexi Pianosi, Strengths and Conditioning Coach, Pittsburgh Penguins (NHL)
🔥Upside Chat: Pierre Barrieu, High Performance Director, Toronto FC (MLS)
⚡ 📈 Upside: Injury Risk Assessment Solutions Ecosystem (Key Trends, Vendors, Recommendations to Teams) Analysis