Hello, happy Sunday, and welcome to Startup Sunday, a new weekly feature I’m kicking off on MorganLinton.com. As many of you know, I am the co-founder of Bold Metrics, a venture-backed startup based in San Francisco that has raised $3.8M to-date. We’ve learned a lot of lessons along the way and today I want to talk about one lesson we learned the hard way – finding a VC firm (in our case multiple firms) that were a good fit for our startup.
Many new founders are laser-focused on raising money and meeting with as many VCs as possible, the problem is, they often burn through a bunch of time with VCs that would have never been a good fit for their startup to begin with.
Here’s an example.
If you are building a startup in the consumer space, maybe it’s an app and your KPI is DAU (daily active users), pitching a SaaS focused VC isn’t going to make much sense, it’s not their wheelhouse, and DAU’s isn’t a metric they’re used to tracking. Also, a VC firm wants to be able to help you, and they can only do that if they have experience with the type of business you’re running.
I have covered this topic quite a bit both with startups that I have invested in myself, or have mentored through Techstars or other programs that I mentor in. I’ve always had a lot of positive feedback on these tips so I thought it was about darn time to share them more publicly, enjoy!
3 Tips For Finding The Right VC Firm For Your Startup
- Identify three other startups that you think are similar to yours but are not direct competitors. Now go to Crunchbase and take a look at who invested in them, this is a great initial list to start with. See if you can go a bit deeper and understand how big their fund is, how much they’ve already deployed, and how much they have left – this is critical information to have.
- Be stage-specific. If you’re raising a Seed round, don’t approach investors that mostly do early-stage deals (which means Series A and beyond) – you’re raising a Seed, you want investors who focus on Seed deals. Take a look at the investors you found in my first tip and consolidate your list so you’re just looking at investors that invested in similar companies at the stage that you’re at.
- Don’t just reach out or attend an event and wait in line to talk with a VC. To get a meaningful meeting with a VC you’ll need a warm intro, and not from a lawyer. Don’t know anyone who can intro you? Then it might be good to consider applying for an accelerator like Techstars or Y Combinator, these accelerators are very well connected and can help you get tons of warm intros.
Last but not least, and I leave this out of my tips section because I think it’s just a general rule that everyone should think about all the time – make sure you’re really starting a startup and not a small business. Small businesses are all about profits, startups are all about growth, decide which path is right for you. Forbes says it best:
Small businesses are driven by profitability and stable long-term value, while startups are focused on top-end revenue and growth potential. Steve Blank’s three-minute definition provides great insight. (Source – Forbes)
If you find yourself in the small business camp, don’t worry, there are still lots of ways to get funding, banks can be a great place to start or even sites like Kickstarter. Just know that VCs invest in startups, so they want to see you present to them something that isn’t going to be a nice safe business that keeps making more money every year, they want to see a rocketship, it might be incredibly risky, but if it works they make a lot of money.
I hope this is helpful and as always, feel free to comment below with any questions, comments, or to share your own experiences.