This is a step-by-step series guiding entrepreneurs on how to approach Venture Capitalists with focus on Silicon Valley. This is the third post and it aims to provide early-stage technology companies with a brief explanation on what you may expect following your first VC meeting and how you can move forward. We asked Timo Lehes, Partner at Scale.VC to lend us some of his knowledge and experiences for this post.
Your team has established a presence in the ecosystem and managed to get an introduction and meeting with a VC. During the meeting you’ve shown that your team can execute on a unique business idea with large potential.
Some entrepreneurs might misinterpret the results from a first meeting as a great outcome or a “done deal” based on the generally positive atmosphere that most first meetings with a VC have. Hearing comments like “we are interested” might lead to premature or false conclusions about the VCs level of interest.
Instead it is better to set realistic expectations. You can be fairly sure you won’t leave the room with a “Yes” or “No” unless your product is conflicting one of the portfolio companies, in which case you will get a straight No. They want to analyze and observe your business over a period of time – and that’s a very good thing for both parties.
The first meeting merely is a way for VCs to understand where you stand. Answering questions such as:
· Is this an exciting market?
· Is it within our investment criteria?
· Is this the right team for this opportunity?
· Is this a team we want to work with?
Further analysis and observation may be initiated if you fit the profile however a first meeting is the starting point in a longer process. This “VC process” is generally between 3 to 9 months from first meeting until agreement, depending on what type of funding you seek. Throughout this process you can expect more screenings, meetings and negotiations. Furthermore, VCs will perform due diligences on your legal, financial, technical, commercial and HR aspects.
What can you do to improve your situation during the process?
There are indirect and direct ways to make an impact.
· A direct way is to send continuous updates on performance and progress. This creates a comfort factor and shows your commitment.
· An indirect way is to find people that are connected to the VC through your networks and persuade them to talk about your progress. To create “social proof”.
Displaying ambition and skills is key and using your wits with a proactive approach goes a long way. It is also equally important to understand where you are in the process and if you’re making progress. The process itself may contain a few larger steps.
· Case identification
· Screening / Evaluation
· Negotiations & term sheet
· Due diligence
Some subtle indicators of your progress may be:
· Meeting frequency, this shows dedication and interest.
· Milestones and to have clear “next steps” in the process is a positive sign.
· Meeting additional partners usually indicates serious considerations.
· Discussing deal terms, board members and ownership structure.
Wrapping up, there is no such thing as weekend trips to get VC funding. It is a process that is meant to take time. Try to figure out where you are and what you can do to improve your situation. Lastly, it is much better to come to Silicon Valley with the ambition to build a great company than to raise money.