There is tons of advice on how to approach venture capitalists for startup fundraising, but there really isn't a one-size-fits-all method.
Venture capital investors enter the industry for many different reasons and come from a wide variety of backgrounds that shape their perspectives on the companies they consider for investment.
Founders must understand what type of investor risk capital They are trying to have the best opportunity to close a financing round. Here are four types of venture capital investors and what founders can do to partner with them:
1.- The follower
It's incredibly difficult to predict which companies will be the big long-term winners, and for early-career investors, getting your first 3-5 investment bets wrong can limit your future career prospects. That's why investors in the followers category care that other credible brands are investing alongside them: latching onto the interest of big names can help reduce the risk of high-pressure investment decisions. This is VC's version of "you don't get fired for buying IBM."
These investors will never take the risk of funding something based solely on their thesis or initial business metrics. When you dig deeper into their portfolios, you see that followers rarely lead funding rounds and that they invest alongside brand investors 95% of the time. If they lead an investment, the company is usually led by a well-known repeat founder or close friend, or the company has already raised 2-3 rounds of funding from blue-chip investors, which makes leading a Series C+ feel safe.
Founders should understand what type of venture capitalist they are dealing with to have the best chance of closing a funding round.
This is the most common type of VC person, and the trend-following approach can be quite successful. In fact, there is an entire quantitative investing discipline in the public market called “trend following” that has made this strategy systematic. Despite its strong academic validation as an investment strategy, no one likes to be called a “follower,” and because of this, followers will almost never admit to being followers.
For founders approaching this type of investor, it's critical to onboard one of the other three types of VCs before reaching out. With that investor's term sheet in hand, you can syndicate your round to one or more supporters.
2.- The academic
Investors in the academic sector have clear theses and do not deviate from them. They deeply understand your company's space and have the knowledge and network to perform due diligence on the business. Academic investors can become extraordinarily valuable intellectual partners and almost feel like co-founders in the way they help you develop your thesis.
Academics are leaders. In the early stage, they are often the first investors or lead rounds largely on their own. In later stages, they are not afraid to invest at turning points and often catalyze course changes. This information is harder to see publicly but easy to detect in conversations. If you suspect that an investor may be an academic, you should ask him what investment thesis he is working on. If the answer sounds vague, they are followers or pollsters. If it sounds too specific, they are academics.
For example, if you hear “we are very interested in how AI can be applied to vertical software,” you are a follower or supporter. probe. If, instead, you hear something that sounds very specific and even a little confusing like: "I have met with every neural chip company to launch in the last seven years and I am convinced that analog chips are the only way to apply AI inference in the edge", is an academic
To get an academic, make a list of investors whose theses match yours. These investors generally They write about their investment theses to attract deal flow. Make sure you've read their work and understand their perspective before asking for an introduction or cold communicating. Before meeting with the investor, clearly articulate the essence of your thesis and combine it with any evidence you have that it will work (e.g., customer interviews) or that it is already working (e.g., retentive cohort analysis and rapid customer growth). income).
If you meet a thesis-driven investor and approach them with consideration and evidence, you will get funding within a few meetings. You can also ask academics who their favorite thought partners are to broaden your search among similar investors interested in your thesis/company.
3.- The sensor
These investors look to their instincts to know if they should make an investment. They fall in love with an idea or a team, and when they do, they prepare the check quickly. They are astute judges of people and can appear to be magicians to the outside world, delivering blow after blow with seemingly no pattern tying them together. “Sensors” can be incredible supporters who have your back even on the dark days of your journey, although I recommend keeping them between 5% and 10% of your target investor mix and avoid drawing big conclusions from their comments because there is nothing that you can control that makes them choose you.
“Sensors” often have public personas and participate in conversations that cover a wide range of topics. Their portfolios often resemble those of their followers because they have many disparate investments, often with top-tier co-investors. However, where they differ is that they lead deals alone. In a way, they combine the public qualities of a follower and an academic.
To probe, you can ask them to tell how they decide to invest. “Sensors” often say things like, “I always trust my gut,” or “intuition is critical to my investment process.” They will describe their conviction in people in a deep and visceral way. If you don't hear this, you're not talking to a feeler.
The challenge of courting a scorer is that it can seem indecipherable to founders. Having a meeting and trying your luck is the only way to know if there is a match. Seek their public perspectives, but don't prepare too much for the meeting. Unlike a thesis-driven investor who will appreciate your preparation and intellectual collaboration, this work will have no impact on sentiment. Either they feel the potential to work together or they don't, and there's nothing that can be done about it!
4.- The analyst
Not to be confused with investment analysts employed by companies, the analyst personality is the most consistent and predictable type of investor. If a business is fundamentally valuable and the price and structure are right, a deal can always be reached. These people will never be the highest bidder, but they will always be direct partners. Your job is to give them the data they need to analyze their business transparently. You can iterate together on a model and increase its valuation or improve its terms by convincing them to change the discount rate based on your assumptions. But you are literally collaborating with a logical machine and that system cannot be gamed.
Publicly, the portfolios of analysts and academics appear similar, but analysts care more about quantitative tests and metrics. If you ask what constitutes a great growth investment, analysts will say things like “I look at the LTV/CAC cohorts.” If you hear the phrases “three-state model,” “discounted cash flow (DCF),” “comparable company analysis (Comps),” or “magic number,” you are talking to an analyst. If you hear a deep, thoughtful thesis about a market but few references to numbers, you're talking to an academic.
Since analysts and academics will look similar publicly, go to meetings expecting to run into either type. This means being prepared with a solid set of 5-10 metrics that you can rattle off monthly. Make sure these metrics demonstrate business growth. If not, you're wasting time meeting with an analyst before your company is ready to impress them.
Remember that while an analyst may push to quickly dig into metrics, it's okay to say that you're happy to dig deeper during a follow-up conversation, but that you want to make sure your thesis is aligned before diving deeper. If you tease 5-10 metrics and then respond with quiet confidence, this often whets the analyst's appetite to follow up and learn more. After the meeting, send an investment memo to the analyst. They will tear it apart and appreciate poking holes in your consideration. When you have reiterated the logic behind your business together and they feel that their objections have been adequately quantified and discounted in your valuation, you will reach an agreement.
Strategic approach to close successfully
Every venture capital is unique, but developing a fundraising strategy that takes into account these four most common investor types can help founders find the right fit for their startup's needs.
Instead of wasting time pitching the wrong guy at the wrong time, you can devote more energy to getting in front of the investors you're most likely to win over. In an unpredictable panorama of fundraising, every pitch meeting counts, so know your audience and give them what they need to accept your business.
