Invest in VC Relationships Before You Need Investment
As a pre-seed investor, I am often asked about what milestones founders should be hitting before they’re ready to talk to investors. I completely understand that there is an important balance founders want to strike between building venture capital (VC) relationships early and not wanting to lose momentum for an upcoming funding round. That said, I think there are a handful of ways you can do one, without sacrificing the other, to best set your business up for a successful fundraise.
A common worry I hear from founders is that they are apprehensive about talking to VCs when they are ‘too early’, for fear that they will be written off in that VC’s mind when the company ultimately begins to actively raise. Contrary to this belief, I have not only seen, but personally experienced, many founders get funded by VC’s they started building relationships with much earlier in their journey.
Pre-seed investors should have an understanding that any business in its early days will expect to go through massive iterations on product, business model, go to market, etc. It is in the best interest of both founders and early stage VCs to build these relationships early to get to know one another and evaluate if this is a team you can see yourself working closely with for the next 10+ years. As much as the VC is evaluating you, you are evaluating if this investment team is best suited to support you and accelerate your company’s growth (the average VC/founder relationship lasts longer than an average marriage!). Doing so prior to the fundraise can allow for more genuine relationship-building.
WHAT VENTURE CAPITALISTS ARE SEEING AT THE EARLY STAGES
Regardless of whether you plan to reach out to an investor at, or before the time of your next fundraise, it’s helpful to know some of the benchmarks when it comes to raise amounts, the makeup of funding rounds, and traction expectations.
The huge caveat with the above table is that the definitions of ‘seed’ vs ‘pre-seed’ are likely going to be different depending on who you ask. Along this same vein, the absolutely correct valuation calculation for a pre-seed or seed stage company can look a lot like this:
That said, below are some averages released by Carta in late 2023 that you can use as a benchmark:
All this to say that early stage investing can often be a lot more of an art than a science. There is rarely a concrete “perfect time” to start engaging with these investors, and you are way more likely to feel that you waited too long to start approaching VCs than the other way around.
So, where to start?
OFFICE HOURS
My first recommendation for talking to VC’s before fundraising is to do so by signing up for open office hours of someone within the firm. This has become an increasingly popular practice amongst the venture community and can be a great, low-risk, way of getting your foot in the door with these firms. See some links below to VC office hours, including my own:
REACH OUT TO ANALYSTS AND ASSOCIATES
Most Partners at VC firms are bombarded daily with an influx of LinkedIn messages and pitch materials. Beyond this, the people most often responsible for top of funnel dealflow are typically the analysts and associates at these firms.
If you are interested in connecting with a particular firm, I would first go to their website and ensure your company is aligned with their investment thesis. This will save time on both your, and the firm’s side, as you can evaluate alignment prior to a call and decide if it even makes sense to connect with them. Almost every VC firm will have their investment scope and thesis listed somewhere on their website.
If you are based in Toronto, this is a great resource for identifying firms you may be interested in reaching out to.
EVENTS
I am a big fan of more intimate gatherings rather than massive conferences where it can be difficult to find the right people to talk to for your company’s specific needs. For women-identifying entrepreneurs, I have really enjoyed going to networking events hosted by Amelia. Amelia hosts intimate gatherings of women in tech, venture, and business. I have met several awesome founders and other investors through Amelia’s events.
Firms have started to embrace more intimate and non-traditional gatherings as well. At Panache, we have hosted spin events, boxing classes, and more and would love to connect with anyone in the startup world who’s interested in building genuine connections while building up a sweat!
I’d love to meet you at one of our future Non-Cocktail Networking (NCN) events. Sign up to be in the know of upcoming NCN’s here.
Ultimately, and unfortunately, there is no silver bullet to fundraising. Nothing beats getting out there and meeting people in the space and forming genuine connections. In sales, it’s said that people buy from people, not companies, and for many VCs (within their thesis, of course) it’s the exact same philosophy.
Featured image by Annie Spratt on Unsplash.
