Evan Fisher
Most founders fall into an extremely common trap: Just because you produced outstanding results for the last round of investors doesn’t mean new investors will believe you. This new cohort hasn’t seen that performance firsthand, and they have no reason to trust you yet.
As a founder approaching your next round, it’s common to wonder, “How do I get this new group of investors to trust that I will perform?”
In our experience, founders who fundraise successfully are great at building relationships, and they usually deliver what we call “the pre-pitch.” This is the “we actually aren’t looking for money; we just want to be friends for now” pitch that gets you on an investor’s radar so that when it’s time to raise your next round, they’ll be far more likely to answer the phone because they actually know who you are.
But the concept of the pre-pitch goes deeper than just having potential investors be aware of your existence. Building relationships with potential future investors requires you to think less like a founder and more like a marketer — much of the relationship heavy lifting comes long before it’s time to ask for a capital commitment.
There’s a host of advantages to the pre-pitch approach:
- Good practice: You’re not asking for money. Instead, you’re offering a sneak peek. Since your relationship-builder pre-pitch doesn’t have millions on the line, you’ll invariably be less anxious, which leads to better relationships. Remember: If it’s not a good fit, who cares?
- Candid feedback: When you’re not asking for money, you’re more likely to receive honest feedback that you might not get in a high-stakes environment.
- Set the baseline: You should go over where you’re currently at, why it’s actually not time to raise capital quite yet (the inverse of “Why Now”), and what you still have to accomplish until the time is right.
- Performance-based trust: Put your performance where your mouth is by showing your potential investor where you are today and what you expect to do in the short term. Later on, you can prove to them that you achieved what you said you would.
7 ways to build relationships with VCs
Now you’re probably wondering, “What the heck do I say to build a good relationship with that next-round investor?” Here are a few notes on how to approach the pre-pitch:
Seek the relationship, not the money
Acknowledge you’re early, but mention that you think it could potentially be a good fit later on. State it up front that you’re seeking a relationship and want to find out if you could eventually be a good fit for one another. Don’t sneak in an ask; let the relationship blossom organically.
Here’s an example: “We’re actually not raising yet, and we’re probably too early for you. But I think this is something you might be very interested in, and thought it made sense to reach out, open up a relationship and see if there might be a fit.”
Don’t waste time
There is no point in starting a relationship if it’s not going to lead anywhere. Once they understand your business and you know what they’re looking for, be upfront and ask whether they think there might be a good fit. Check your ego and capital needs at the door.
You can say: “Hey, we’re all adults here, and I want to be respectful of your time, so shoot it to me straight — do you think we might be a fit at some point? Don’t worry, I have thick skin.”
Remain goal-oriented
Be a friend, but don’t overdo it. This is a business relationship and the end goal is to convert that relationship into future funding. Getting friend-zoned isn’t going to help you.
Say something like: “We are going to run an active process eventually, but I don’t think we’re raising from your level quite yet.” You could even add, “But who knows? I could be wrong. Would you guys want a first look?”
Do what you say
This is where you lay out your KPI roadmap. You’ll want to make sure these are easily achievable if you want to come back and show your success.
You could put it so: “Here’s what we’re going to do in the next nine months. These are the milestones we’ve got our eyes on that signal a value inflection point.”
In other words, you’re saying, “These are the milestones we’re going to smash, and when we come back to this table in 12 months, we’ll pull out the same KPI Targets slide, show you we accomplished it, and talk about why it’s now time to write a check.”
If it’s a good fit, ask about the next move
This is where you need to be careful. If an investor hasn’t invested in your space, doesn’t know your industry well or typically invests in later-stage businesses, don’t try to change who you are to fit their mold. Try to only ask investors who fit well about what they’d like to see in the future. But be careful — if you haven’t established that they’re a true perfect-fit investor, then you are risking taking bad advice to heart.
But assuming they’re a potential good fit for your future round, you might ask: “What are the things you look for in a deal? What are the development milestones you love to see for businesses in our space?”
You just might hear similar insights from multiple perfect-fit investors. If there are several common threads, then you might have just crowdsourced your next key milestones.
Always ask for referrals
You never know where a referral might take you. VCs tend to compare notes with other VCs and actively network with earlier-round investors in companies they’re considering backing. If an investor has made a deal in your space, there’s a good chance they know an earlier-round investor who could potentially be a good fit for you today.
Here’s one way to approach a potential referral: “Do you happen to know any other VCs who you think we should talk to (either for today’s round or the next round)?” Be direct: “Would you be willing to make an intro?” Joke it off: “I promise we’ll make you look good.”
Build your community, and keep them updated
If you want to be perceived as a professional who is ready for the next round, you must send regular investor updates. If you aren’t doing that already, start now. Don’t just nurture your existing relationships, take care of all of them — your new friends might not be ready to invest now, but they might be in a year or 18 months from now.
Yes, investors do want to see you now
Don’t psych yourself out. Canny investors do talk to founders early. Sure, it’s extremely helpful if you have a long track record of IPOs and exits, but doing your diligence on potential next-round investors — and having a good, grounded sense of which stage your company is in — can work as a substitute.
For example, when you’re looking at other deals in your space and see a certain fund’s name pop up on a press release, look into it. If you find yourself saying, “Yeah, we’d be a great fit for that VC down the road,” don’t hesitate to reach out.
Because they could be ready to invest now
This doesn’t happen often, but VCs can sometimes flex their investment criteria for a compelling thesis and otherwise-borderline qualifying company. For example, founder of mortgage-industry sales tech company leadPops, Andrew Pawlak, said of one potential next-round institutional investor:
The VC partner initially laid out an EBITDA threshold, which, on its face, would de facto disqualify us on fit in today’s round. Based on the fund’s criteria, we would be just a little early. But once we got to talking about exactly how we’re going to hit and surpass that EBITDA threshold, they got super interested in co-investing in today’s round – they didn’t want to wait until later.
When an investor understands your vision for the business, and if the numbers look good and you have a great team, they just might be willing to bend their investing criteria to be a part of your success.
Investors are opportunists by necessity, so if they like the cut of your business’s jib, you never know — the FOMO might start kicking hard. And you’ll be in pole position to capitalize, because you didn’t approach them looking for money. Instead, you started off that relationship by saying, “Hey VC, let’s be friends.”
Comment