It’s too early to determine whether SVB’s downfall heralds a new era for venture capital, but based on anecdotal evidence, off-the-record discussions and chats with co-workers, it seems like we’re back to business as usual where pre-revenue startup fundraising is concerned.
Friday in tech vs Sunday in tech pic.twitter.com/NsuzK5fqty
— Yuri Sagalov (@yuris) March 13, 2023
Not a scientific sampling, but several investors signaled this week on Twitter that they remain interested in talking to founders who are still at the idea stage. My hot take: With contagion contained, the VC community feels good about writing smallish checks for pre-revenue startups, but Series A and up? Más o menos.
As long as this downturn persists, this investor Q&A will be a monthly TC+ column. If you’re a recently laid-off worker considering striking out on your own, an H-1B employee who’s had it up to here or just looking for tips and advice that can help you connect with early-stage investors, please read and share.
Thanks very much to all of the investors who took the time to answer these questions in such detail! If you’re an early-stage investor who wants to be included in future columns, email guestcolumns@techcrunch.com with “How to pitch me” in the subject line.
Here’s who participated:
- Brian Backeen, general partner, Lightship Capital
- Masha Bucher, founder and general partner, Day One Ventures
- Rebecca Liu-Doyle, managing director, Insight Partners
- Clelia Warburg Peters, managing partner, Era Ventures
- Nick Adams, managing partner and co-founder, Differential Ventures
- Lisa Lambert, founder and president, National Grid Partners
- Elizabeth Yin, co-founder and general partner, Hustle Fund
Brian Backeen, general partner, Lightship Capital
What kind of investment opportunities are you looking for in March 2023?
Like many investors, we are bullish on AI. We made two AI-related investments in April and continue to look for opportunities in that space.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
We have an online portal at lightship.capital that founders can use to apply for investment. We do that to prevent an issue with VC investors called “network bias.” Founders should apply on our portal and follow on Twitter.
What’s one traditional fundraising tactic that founders should remove from their toolkit — something that no longer works but is still a common practice?
Asking for warm intros and trying to “build a relationship” with investors. Spend your time building a great business and you will gain investment. I don’t need new friends.
Tell us about the best pitch you’ve received recently. When during their presentation did you realize you were going to invest?
I was pitched by a firm called MuseTax recently. Excellent founders, subject matter experts, the real deal. They made me want to invest in the first 10 minutes. They are in diligence now.
Can you share one piece of advice that can help a first-time founder stand out?
Don’t focus on investment; focus on design. Don’t let your engineers build you an ugly product with a great password reset function but limited user value.
Don’t let the engineers tell you it’s not ready; it is. Push it out and learn.
Design it well and users or investors will follow. Engineer the first version well and you will end up with lots of engineering bills and no progress.
What are you reading/watching/listening to right now?
I keep rewatching season 1 of “Billions.” You know, before it got weird 🙂. Great show.
Masha Bucher, founder and general partner, Day One Ventures
What kind of investment opportunities are you looking for in March 2023?
During a healthy fundraising environment, the founders that do the best often lean into their storytelling prowess and can convince investors with their charisma. They’re the ones who are naturally good speakers and are articulate with their vision.
There’s a second type of founder with a different background. They’re often heads-down, scrappy and resource-oriented. I call them “survivors.” Survivors are often immigrant founders, people of color, women or others from underrepresented backgrounds.
I believe the survivors are the types of founders to back during a downturn. They’ve been pushed to be scrappy and survive their whole lives; they’re especially equipped to handle what the current times demand of them. They’re good at making something out of nothing and are extremely cost-efficient.
I’m looking for paths to monetization, business models and avenues to profitability. Investors are paying much more attention to numbers, business models and how well founders manage finances. Expect many more questions challenging the business model.
I’m looking at how much revenue comes from product quality versus marketing. Founders who generate virality based on the product’s quality show they can make money with little marketing spend.
We love companies with high EBITDA. We love companies like Quinn, which grew to millions in revenue in just a year from launch with viral, zero-cost marketing on TikTok.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
Cold email works great, but it’s surprising how few people can do it right. In a cold email, every single sentence should be convincing me to take a meeting. With every word and every sentence, you need to create the desire for an investor to meet you in person. You have to show a clear reason why they need to meet you now, not next month.
Clearly articulate your background, how big your market is, your traction and signals of external validation from advisers, mentors, investors and employees who used to work at reputable companies.
Most importantly, you need to communicate: Why now? Why should an investor meet you now and not in two months?
An introduction from a successful founder from our portfolio or network is valuable, too. If the founder of a unicorn enterprise company introduces me to a founder in vertical SaaS, I’ll believe it’s a high-quality founder and be more likely to take a meeting.
What’s one traditional fundraising tactic founders should remove from their toolkit — something that no longer works but is still a common practice?
Never send an email blast to investors while fundraising, especially using tools that make it feel like the email is sent by a robot. Corporate, robotic-looking emails make me feel that a company is run by robots. I’d never take it seriously.
It’s obvious when someone is using a shortcut and hasn’t done any research about our work or portfolio. It’s inefficient and ineffective.
The best emails I receive clearly articulate their most impressive relevant background, what they’re building, why I need to take a meeting now and signals of external validation (angels, other investors).
Tell us about the best pitch you’ve received recently. When during their presentation did you realize you were going to invest?
One of the most memorable pitches I’ve ever received was through Instagram DM. It was from a student studying physics at a good university. He wrote a genuine, serious DM about the impact he wants to make and said that he’s ready to fly anywhere in the world to meet for coffee.
Two years later, he’s running a multibillion dollar company and we’re one of their early investors.
Can you share one piece of advice that can help a first-time founder stand out?
Always prove why investors should care about you right now: what will they lose if they don’t invest in you? Founders need to have a good response to this question to keep investors’ attention. Make it as timely as possible.
This is important not just in the initial conversation but across all conversations. The best founders keep this momentum going every day. That’s what it means to be a Day 1 company: What the company is doing every single day is the most important thing in the universe.
You don’t stop answering “why now?” when you receive a check. Founders need to keep the momentum so the best investors are incentivized to continue helping them.
What are you reading/watching/listening to right now?
I’m rereading “The Fabric of Reality” by David Deutsch. Our environment is so heated and turbulent right now, and this book helps ground me on how reality is organized at a high level.
Rebecca Liu-Doyle, managing director, Insight Partners
What kind of investment opportunities are you looking for in March 2023?
We aim to be a long-term partner to the best and most enduring software founders and businesses across stages. “Software” extends from pure-play B2B SaaS and fintech with differentiated workflows to consumer internet with a tech-driven moat.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
The majority of our deal flow comes from our incredible group of analysts and associates. More often than not, they are founders’ first touchpoint with us, and they help us ensure we’re building relationships with companies for months (if not years) before we invest.
So if you get an email from one of them, please respond! We pride ourselves in hiring the absolute brightest. I promise you won’t be disappointed.
If we haven’t found you yet and you want to get in touch with us, it’s less about the channel and more about the substance. Relatively speaking, it will be easier for a warm intro from a trusted collaborator to stand out, but that doesn’t mean a cold email can’t do the trick if it’s thoughtful.
Here’s my Linktree.
What’s one traditional fundraising tactic founders should remove from their toolkit — something that no longer works but is still a common practice?
Running a hyperfast process. I want to take the time to get to know founders as people and in person. Much is lost in translation when we’re sprinting toward term sheets over Zoom screens.
Tell us about the best pitch you’ve received recently. When during their presentation did you realize you were going to invest?
There are only a few cases where the pitch itself played the most important role in shaping my perspective on an investment. In each of those cases, the product demo was the turning point.
But it wasn’t just the elegance of the experience, how slick the features were or the rigor of the functionality. It was the way the founder wove in the narrative and nailed the value proposition.
I was literally “sold,” as if I were a customer.
Can you share one piece of advice that can help a first-time founder stand out?
Spend any “extra” minutes in your day with customers. The only fail-safe way to stand out to investors is to build a business with KPIs that can tell half of the story for you. The only way to achieve those KPIs is to be downright customer obsessed.
What are you reading/watching/listening to right now?
- Reading: “The Splendid and the Vile” by Eric Larson. I’m usually reading fiction, but this book has been a joy. Wonderfully written with powerful lessons on leadership.
- Listening: “Midnights” by Taylor Swift. Until the next Taylor Swift album comes out.
- Watching: Ever since “Crash Landing On You,” I’ve been on a huge K-drama kick. Currently cranking through “Extraordinary Attorney Woo.” It’s pure happiness!
Clelia Warburg Peters, managing partner, Era Ventures
What kind of investment opportunities are you looking for in March 2023?
We’re particularly interested in businesses addressing pressing issues in construction, including those providing solutions for labor shortages and the flow of capital within a construction project.
We’ve also been seeing a number of businesses focused on broader real estate capital market disruption (next-generation asset management platforms), and we are excited about businesses that require multisided capital.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
Networks and relationships are very important to us and core to how we approach investing. So a warm intro from someone we trust is often the best way to get our attention.
I’m also reachable via email.
What’s one traditional fundraising tactic founders should remove from their toolkit — something that no longer works but is still a common practice?
Exaggeration. In today’s environment, investors are looking for founders who are clear-eyed about the opportunity in front of them and can provide a realistic assessment of what’s possible in terms of growth and the overall opportunity for their company.
Tell us about the best pitch you’ve received recently. When during their presentation did you realize you were going to invest?
Because we’re sector specialists, we have the ability to track and build relationships with the strongest founders in our space, often over time.
Particularly in today’s somewhat slower-moving market environment, many of our investments have been in founders with whom we built a relationship over time. We are very diligent, so we’d never invest based on a single pitch presentation.
It’s not always obvious to me based on a single conversation who we are going to invest in, but what I am assessing in that initial conversation is:
- Team: Do I truly believe that this team can bring a transformational business to life in the acutely compressed venture timeframe?
- Product: Is this product solving a genuine pain point? Does it elegantly address a profound underlying challenge that is causing friction or discomfort at a scale where people will choose to spend money to find a solution?
- Timing: Are people willing to adopt this solution at scale at this time?
Can you share one piece of advice that can help a first-time founder stand out?
I have three:
Firstly, you need to have (both for yourself and others) a clear answer to the question of why it has to be you building this company.
Secondly, you need to understand what you are good at and where you need support. You need to understand who you need to have around you and be focused on putting together an extraordinary team.
Thirdly, I have an “animistic” view of company building. A company has its own path and one of the most common mistakes first-time founders make is to think that they are the company. They don’t see the company as a distinct thing. One of my most significant pieces of advice is to look at the company through the lens of what’s best for the company as an independent entity not what’s best for you.
What are you reading/watching/listening to right now?
Watching: I just finished “Fleishman Is in Trouble,” which hit a little too close to home. As a native New Yorker raising my children in the city, I was both fascinated and slightly terrified by it. It was like a car crash that I couldn’t stop watching.
Reading: In the past year, I read “Emergent Strategy: Shaping Change, Changing Worlds” by Adrienne Maree Brown. It profoundly impacted how I think about organizational strategy and what power can mean going forward. I am also really excited to read the young adult version of my beloved friend Heather McGhee’s book, “The Sum Of Us: What Racism Costs Everyone and How We Can Prosper Together,” which is an incredible reflection on the ways racism is corrosive for everyone in the United States regardless of their racial identity.
Nick Adams, managing partner and co-founder, Differential Ventures
What kind of investment opportunities are you looking for in March 2023?
We have been a seed-stage data- and AI-focused fund since we launched our first fund back in 2017 and will continue investing up and down that tech stack.
Today, our investment thesis is broken down into four themes: AI-powered businesses, advancing the ML tech stack, evolution of engineering and infrastructure, and responsible data management and information analysis.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
Someone on our team looks at every deal that comes in regardless of how it arrives. Given the high volume, it’s not possible to reply to everyone, but each email and deck do get reviewed.
The reality is, one of the things we evaluate founders on is their ability to sell themselves and the company, so reaching out with a compelling, personalized email or finding a warm introduction is a great way to demonstrate those skills.
Founders don’t need to be the best salespeople on the planet, but they need to be good enough to build the company to a certain level of traction to make it appealing to future investors and/or acquirers.
To reach out directly, I recommend using the form on our website or emailing us.
What’s one traditional fundraising tactic founders should remove from their toolkit — something that no longer works but is still a common practice?
I wouldn’t be deceptive about anything in the fundraising process. It’s very common to see fake warm introductions from people we don’t actually know, misleading investors about having a term sheet and misrepresenting customer traction.
These behaviors really erode trust and are easy due diligence. Any decent lead investor is going to do their homework on the business and will find these inconsistencies during the diligence process.
Fundraising is just like sales: The next best thing to a “yes” is a fast “no.” It really wastes everyone’s time when founders use these tactics, since it is unlikely that an investor will proceed with an investment when they uncover them.
Tell us about the best pitch you’ve received recently. When during their presentation did you realize you were going to invest?
I think the startup industry has been overly influenced by “Shark Tank.” Founders have been programmed to think that you can walk into a pitch meeting and will walk out with a go/no-go from an investor within 10-15 minutes. That’s just not how it works.
I get most excited by pitches that show me the founder is really knowledgeable about their industry and their solution can dramatically improve upon the status quo. We are thematic investors, so our goal is to be at least 80% informed about any pitch meeting we take, but we are looking for founders who are leaders in their domains to put our capital behind.
If I get excited about the team, product and market in an initial pitch, then I’ll schedule a technical meeting with my partner to dig into the engineering and data science side of the business. If those two conversations go well, we’ll kick off a deeper dive to better understand the opportunity. The more organized a founder is with providing information about the company, the market, competition, etc., the easier it is to get to a “yes.”
Can you share one piece of advice that can help a first-time founder stand out?
Be really concise and clear with your messaging. In the first five slides of a deck or 45 seconds of a pitch, you should be able to communicate what you are doing, why it is important, why your team is uniquely qualified to win in this market and the top proof points you have to support your claim. This last part could be your professional experience, personal connection to the problem, traction and so on.
What are you reading/watching/listening to right now?
I am a better listener than I am a reader, so I’m a big fan of Audible for long-form content. Right now, I’m listening to “Chip War” by Chris Miller, a professor at Tufts University in my home state of Massachusetts.
The Economist and Wall Street Journal are staples for me to stay on top of macro issues. I also read a bunch of blogs and listen to podcasts to keep up to date on the tech and VC industries, in addition to my TechCrunch+ membership, of course.
On the personal side, I’m not big on TV, but my fiancée works in the media and fashion industry, so I recently found myself watching “The Bachelor” with her. So many things about that show are shocking to me, so it’s really out of morbid curiosity and genuine concern for our society that I find myself watching it with my jaw dropped.
Lisa Lambert, founder and president, National Grid Partners
What kind of investment opportunities are you looking for in March 2023?
We follow the “three Ds” that are disrupting the energy system: digitalization, decentralization and decarbonization.
Within those broad categories, we look for a range of enabling technologies that fall into four categories:
- Utility of the future: Solutions that increase grid capacity.
- Smart grid/smart enterprise: Solutions that use real-time data to manage energy supply and demand, and technologies that help make the enterprise consumer-friendly (cloud-enabled solutions, cyber protection, automation, etc.).
- Modernizing assets and operations: Solutions in capital asset management and infrastructure project management.
- Consumer experience: As we add grid capacity, we do it in a way that doesn’t add cost to the consumer (e.g., energy efficiency, demand response, microgrids) and is a “smartphone-like” experience that gives consumers flexibility and control. If it’s not relevant to disrupting the energy system, it’s not a fit for us.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
Most of our deals come in via our global network of entrepreneurs and venture capitalists, but we like to cast a wide net. Our team’s bios are on our website and we have a Contact Us form that’s regularly monitored for incoming emails.
What’s one traditional fundraising tactic founders should remove from their toolkit — something that no longer works but is still a common practice?
Relying too heavily on the relationship approach to securing VC interest rather than aligning with and being informed about the VC firm’s strategy and the fit for your business. Networks are important in venture capital, but I’ve seen some startups use that as an excuse for not properly preparing to pitch a new VC. It’s as if the network connection is stronger than knowing who you’re pitching to and why they’d want to invest in your company. Entrepreneurs should use both methods to maximize their chances of securing financing.
Can you share one piece of advice that can help a first-time founder stand out?
Do your homework and understand the market. Tell us concisely how your team and technology are positioned to disrupt it and how you plan to generate and maintain customer traction. Anticipate questions and be ready to answer them.
What are you reading/watching/listening to right now?
From a financial perspective, I’m mostly following the Federal Reserve and macroeconomic trends that impact IPO windows and M&A transaction volume. It’s key to getting liquidity for our portfolio, so it’s important for us to stay abreast.
From a technology perspective, we’re doing a lot of work around hydrogen. We recently published a playbook on how hydrogen entrepreneurs can get to manufacturing scale and secure customer interest, so this topic is definitely top of mind for me.
Elizabeth Yin, co-founder and general partner, Hustle Fund
What kind of investment opportunities are you looking for in March 2023?
We continue to be pre-seed software generalists. We don’t try to chase particular ideas, verticals or hype cycles. On the flip side, we also continue to invest in verticals that are down in the dumps, such as web3.
We are looking to invest globally in opportunities that are fairly greenfield and where the founder has a strong understanding of the problem and interesting insights into a unique solution.
How do you prefer to be approached by a founder with their initial pitch: a cold email, a warm intro or another method?
We ask all founders who are interested in raising money from us to apply on our website. This helps us get the full picture of your company, and we can look at each company in the same way with the same pieces of information for each.
What’s one traditional fundraising tactic founders should remove from their toolkit — something that no longer works but is still a common practice?
I think for the pre-seed stage, you don’t need financial projections. We all know they will be wildly inaccurate and you really can only lose by putting them in there. Financial projections are like “Goldilocks and the Three Bears”: you’re either too unrealistic or not ambitious enough.
Tell us about the best pitch you’ve received recently. When during their presentation did you realize you were going to invest?
Having seen more than 40,000 pitches across my investing career (and having invested in 700+ companies 🙂), I very much temper my excitement when I meet founders. I’ll give you a non-answer:
There have been only three times in my career when I’ve committed to invest on the spot. One had a successful exit with 2x returns; another is at about 30x return on paper; and the last one has had no VC markup but is doing millions a year in revenue profitably.
That said, they are also not my best performing companies, so I truly believe there is limited correlation between a great pitch and an excellent company. There is a bar and you have to have a good pitch — i.e., it has to make sense and you as a founder need to have interesting insights and really understand the problem.
But beyond that, an excellent pitch doesn’t make an excellent founder. There’s also a lot of luck in how the hypothesis actually maps to an amazing business opportunity. The founder can be excellent but may not be working on that big of a problem.
Can you share one piece of advice that can help a first-time founder stand out?
I think it’s really important to understand differentiation — how one’s solution is different not only from competitors but also alternatives. This is probably the top reason we pass on taking a meeting. The problem is that founders often don’t know who else is out there and what other founders are pitching. This might help.
What are you reading/watching/listening to right now?
I just finished reading the book “Disney’s Land: Walt Disney and the Invention of the Amusement Park That Changed the World” by Richard Snow. Fun fact: To fund something so capital intensive as an amusement park, Disney struck an exclusive deal with ABC, who gave them a huge chunk of the money as a loan (with equity taken) as well as a TV show to promote the park to tens of millions of Americans. So by the time they opened the park (in just one year), tens of thousands of attendees were primed to visit.
I am in the middle of the audiobook “Crying in H Mart” by Michelle Zauner. It’s a memoir about a woman who loses her mother to cancer. Really well written.
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