Why You Should Never Sleep with a VC on the First Date


Investor Photo_HL

You’ve heard the age-old adage, “Taking money from a VC is like getting married.” It’s true. The average company exit—whether it is through an acquisition or an IPO—will occur within 8 years of starting a company. Based on a 2009 Census study, marriage exits (more commonly referred to as divorces) typically occur within 8 years of walking down the aisle.

Courting investors bears similarities to courting a mate.

Let Them Come to You

If you read, The Rules, you know the key to finding a mate is to keep busy with your own life. This is great advice for startup founders. Investors want you when you’re doing your own thing. Doing your own thing involves talking to prospective customers, getting prospects to become believers, and letting them tell your story. This is how breakout messaging darling Snapchat was able to hook investor Jeremy Liew. A user mentioned the app was catching on like wildfire and Liew took notice.

“So Jeremy sent me a Facebook message. I ended up meeting with him and showed him some of the early data we had. That was the month we were not going to be able to pay our server bills anymore,” said Evan Spiegel, Snapchat CEO.

The rest is unicorn history. Of course, this is not always the case. Most entrepreneurs do need to put in a bit of work. But let’s make sure we’re working smart.

Don’t Be a Pervert

On a regular basis, I receive detailed pitches from strangers looking for capital. I’m not writing checks and if I were, I would not write them to strangers. This is the equivalent of asking a married person you’ve never met if they want to go on a romantic getaway with you. One in 10,000,000 might be interested. Most will find your behavior a bit too forward.

The ideal way to court an investor is to take it slow. Once you’ve identified an active investor in your space, break the ice. You can do this by commenting on his or her blog, following them on social media, showing up to her them speak, or simply sending an email to acknowledge you appreciate their work in the space. Building a relationship takes time. Make sure you have a funding timeline that allows you to take required action before you actually start asking for capital.

Be Open-minded

Everyone has his or her tier one dream list. Like Mick Jagger once said, “You can’t always get what you want, but if you try sometime you just might find you get what you need.” Finding investors is like this.

It’s okay to create a tier one list, but you should also create a tier two list and a tier three list. Often times, the well-known funds are not the best fit for your particular idea. You want to focus on finding investors who have domain expertise. This could mean Sequoia or it could mean a fund recently launched by seasoned operators. You might end up pitching to funds you never knew existed. This is fine. In fact, casting a wide net will give you more options to pick from, which leads us to our last tip.

Play Hard to Get

It’s easy to get excited when you receive your first term sheet. Don’t be easy. The worst thing you can do is sign an exclusive, locking you into that specific term sheet. If due diligence doesn’t goes as planned, you’re back to square one.

The best strategy is to develop and follow a funding roadmap. It might look something like this:

You can download and modify this roadmap here.

Not all fund raising will occur within four months. You might move your ‘Sign Term Sheet’ block into Month 18. The idea is to have a plan. If you don’t have a plan, you increase your chance of failure.



Reprinted by permission.

Image Credit: CC by Tech.Co



About the author: Lili Balfour

Lili Balfour is the founder and CEO of the SoMa-based financial advisory firm, Atelier Advisors, creator and host of Finance for Entrepreneurs, author of Master the Finance Game, and host of the Finance for Entrepreneurs broadcast on Spreecast.

After spending fifteen years in investment management and investment banking, she decided to develop a firm to cater to the specific needs of early-stage companies. At Atelier Advisors, Lili advises leading brands across industries: from tech to consumer goods. In the past, she has advised over 100 brands, including:

Bag, Borrow, or Steal, Visual IQ, Alpha Theory, Derivix, Practice Fusion, Peeled Snacks, Sustainable Minds, Firescope, Chix 6, Duchess Marden, Erin Fetherston, Eckart Tolle, and Stuart Skorman (founder of Reel.com, Elephant Pharmacy, Hungry Minds, and Clerk Dogs (sold to Netflix)).

While advising companies at Atelier Advisors, she observed a common theme – -brilliant founders avoided finance. She began writing about entrepreneurial finance to solve this problem.

As a native of Silicon Valley and a first generation Mexican American, Lili understands the importance of imparting wisdom learned in Silicon Valley to the rest of the world. Her goal is to teach the entire planet about entrepreneurial finance.

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