Did you just cold call Bill Gurley from Benchmark? Shame on you. NEVER cold call a VC. That is so 1999. It is 2012 – have you heard of Google?
Raising venture capital seems like a black box to most entrepreneurs, but it is actually pretty easy once you understand the rules. First, never cold call a VC – that is the first rule. Get an introduction (more on that in a minute). Second, only call VCs that invest in similar companies. Don’t bother calling a bio-tech VC with your mobile app unless it can cure cancer. Visit their website. Check out the sort of deals each firm does. Then visit the profiles of each partner at the firm. Each partner has a bias and a particular focus. Find the right partner for you and your business. Once you have found the right partner start reading his blog, his Facebook page and his twitter feed. Get to know him. It will take a day or two – but it is vital to understand your prey before stalking him. Lets pretend Bill is our prey, visit the following before reading further:
You might be surprised to learn Bill is a Longhorn. Yes, he went to the University of Texas for his MBA. He is also a geek – an engineer with Compaq. Oh, and he is a Zac Brown fan – that is key info. Now you know Bill a little better lets take him down!
Lets assume you don’t know anyone who knows Bill. Remember, don’t cold call him – huge mistake. But all hope is not lost. We can still get an intro. Bill is an investor in:
Dog Vacay – CEO: Mike Jones
Ubiguiti Networks – CEO: Robert J. Pera
Uber – CEO: Travis Kalanick
Grubhub – CEO: Matt Maloney
(BTW – there a bunch more)
Now lets call all of them. Let them know you are considering taking an investment from Benchmark and Bill Gurley. At least one of them will call you back. Ask them what it has been like working with Bill. Ask them if they would do another deal with Bill. You might be surprised what you hear. Eventually you will run into a CEO who is not a big fan – listen to them. But at the end of the day if you hear more good than bad it might be time to set the hook. Call Bill and let him know you talked to [insert name of CEO], that he had great things to say about him and that you wanted to talk to him about investing in the next Uber (or whatever).
100% of the time you are going to get a return call. It has NEVER failed for me, ever – if it does, call me and I will get you the meeting myself. Of course, once you get him on the phone it is your job to get the meeting. I’ll save that advice for my next post, “How to get the meeting.” Good Luck!
Earlier this week I was on a panel at MobCon with Michael Gorman (managing partner at Split Rock Partners) called, “Investing in Mobile Companies” and one of the early questions was about WHEN an entrepreneur should raise outside capital. Michael put me on the spot and asked my opinion. To be honest, I have had a bias against raising outside capital since I raised my first $11M when I was in my twenties. The process was time consuming, frustrating and ultimately heartbreaking. In the case of my lastest startup, ShopSavvy, we waited WAY too long to raise outside money (three full years from the start). We starved the company until last year. I decided to answer the question based on my current bias.
If you are starting a high-growth company today, it is my opinion that you should raise capital as soon as possible even if you don’t actually need the money. Why? I believe you need the social proof outside funding provides. In the case of ShopSavvy we kept getting download volume that seemed to give us the social proof we thought we needed, but the reality was without the capital the social proof would have helped us get we were really squandering the opportunity we had. We needed three or four times the staff we were able to field on our own – outside money combined with our traction would have ensured we exploited the opportunity that was in front of us.
If (and when) I start my next deal you can bet that I will participate in an early stage accelerator like TechStars, Y Combinator or 500 Startups. After I get my inexpensive ‘social proof’ from an accelerator I will immediately raise a small angel round (likely a convertible note) from folks like Dave McClure, Jason Clavier and Aydin Senkut. And then, as soon as possible, I will attempt to raise a Series A from a top tier VC like First Round Capital, Benchmark or Andreessen Horowitz.
Is it possible to build a successful business without going through these three steps? Sure. I’ve done it several times, but I have never built a HUGE business. If you want to build a billion dollar business you are going to need a LOT of help. You are going to need the people you meet in the accelerator, you are going to need the people who fund your angel round and you are going to need the help of the partner you work with at the venture capital firm. You are going to need their help to help you get out of your own way. Very few of us have the ability to scale from zero to a billion and we need the best of the best to help us take our nascent ideas to the next level over and over again. Don’t mess around with you business – trust me – raise money ASAP.
Just a quick programming note – I am going start writing about entrepreneurship on the StartupMuse once again. Expect one or two posts a week. If you have any particular topics or questions you’d like me to write about please feel free to reach out to me directly at firstname.lastname@example.org.