Welcome to the next step in your funding journey: the partners’ meeting. If you have followed this series, by now you will have gathered your materials, approached the right VCs (and succeeded), and made it through the first meeting with someone at the firm. Congratulations. You’re farther along than most companies ever get. Since you will have reached out to many investors, connected with several of them, and made it through the first meeting with a few… you should have a partner meeting or two on the calendar.
“Happy families are all alike; every unhappy family is unhappy in its own way.” So wrote my countryman Leo Tolstoy opening his Anna Karenina. That line always came to mind as I presented at VC partner meetings. Most funds, as most families, seem happy. And while some actually are, in my experience, many are somewhat unhappy — each in its own way and to varying degrees. Presentations to partners are more about psychology (some call it politics) than substance, about how you say things and to whom, and not what you say. These meeting are less about substance because you should know that the fundamentals are right or you wouldn’t have been invited to present. Still the presentation guidelines for the first meeting, but…
- Have a coach. The person inviting you to the partners’ meeting who heard your presentation live should be your coach through this step. This is very important. You need a friendly sherpa with inside information who can guide you away from the psychological land mines and explain the characters you are about to meet. Almost always, the person that suggested the partner meeting will be your coach. He is, in a way, putting his reputation on the line and has a lot at stake in making you look good. Use this to your advantage.
- Know the audience. You should know who will be at the meeting. And you want the meeting to have, ideally, enough members of the fund to make a decision. You should know their names and their titles. Get this information from your coach. It is now up to you to try to create a profile for the key players. If there is a teleconference with another office, fine, but you will, inevitably, focus on the people in the room.
- Research. You should know where the players on the other side came from and what they did in the past. You should know what boards they serve on, what investment areas they prefer. You should know their schools and majors. You should read through their blogs. Many VCs (including this one) clearly signal what they are looking for in their social media interactions.
- Identify players. Titles and roles in a VC fund are often confusing to the non-initiated. Here are the basics…
- Associates: usually, they are VCs “in training,” straight from (business) school. They are there to show their investment mettle to the rest of the partnership which they hope to join or to build a reputation that will advance their career at another fund. Smart ones also care about their reputation with the entrepreneur community and, thus, care about what you think of them, because, chances are, you will meet again in another venue. They can be the strongest allies you have, but, occasionally, or can come off as insufferably arrogant. You have to worry about the latter for the duration of the meeting, but, in the long run, they won’t last, so just note who they are for the future. Good associates tend to have a “pro-entrepreneur” bias which is generally forgiven by the partnership because of their inexperience and eagerness to find a big hit. Associates do not say “yes” but can certainly sway the decision. They do not officially say “no” either, but, depending on the fund, get heard. There is competition between associates on who can outsmart the other, so be ready for seemingly clever questions. They care deeply about what the other people at the table think of them so do not put them down even if you feel you can. In general, they are smart, energetic, and want to see deals happen. Associates should be your friends.
- Principals/Jr. Partners/VP’s: up and coming investors hoping for a partner role, usually at the fund where they now work. VC funds raise money infrequently, and, thus, there are long waiting periods for an opening in the partner ranks. They should be on a few boards — find out which ones because that indicates their specialization. They tend to be more neutral in their approach to companies, often skewing their questions to the business side of the matter because it is the safer route. Again, they could be very valuable allies, especially if they seem to be the heirs to the fund’s partnership roles or rising stars in the VC community. But, stars have egos and want star treatment — treat them with care. They can certainly influence things in a big way, though probably won’t make the final “yes” or “no” call. They tend to be more conservative than the associates because, at this stage in their careers, they are worried about getting a “track record” of investments in which they take part in order to score a partnership role. You should offer to discuss any of their concerns in detail and after the meeting in person — shows respect and neutralizes at the same time. You may want to hint that you would want their involvement in the company down the road — vote for longevity.
- Partners: obviously, the most important group. But, in general, partners have their own investments to worry about and unless the coach happens to be one of the partners, your role is to show all of them how valuable their opinion and insight may be. Don’t be offended if a partner is silent at this meeting. It does not necessarily mean he doesn’t like what you are saying. Partners tend to specialize in industries/markets/technologies so it may be that what you are talking about is simply outside of their comfort zone. That doesn’t mean they will say “no.” Hopefully, they will be open to opinions from more deeply engaged partners in their decisions. In most funds, no single partner can say “yes” but any one of them can certainly say “no.” Don’t piss off any of them, and don’t argue. The decision is usually made by consensus (though some funds have strange point-based voting rules) so it’s important to get all the partners to at least “neutral.”
- Senior/Managing Partners: if the fund has this title, this is an important, usually more experienced person and thus, should be treated with care and respect. Try to find if the control model is more of a “Roman republic” (which had two equal consuls), “classic Roman Empire” (which had one omnipotent emperor) or “late Roman empire” (where the East and West were split between Rome and Constantinople). The classic empire model is simple — make sure the guy at the top agrees. This model tends to be most dysfunctional, so, you’re really rolling the dice unless the top guy happens to be your coach. The late empire is also simple — make sure you know which part of the realm you belong to and act accordingly. The “consulship” is tough. There is competition among the top ranks and you have to walk a delicate line in pleasing two or more often contradictory parties.
- Venture Partners/hired experts: usually, people who are “trying out” venture capital, on their way up, or, getting out of the business, on their way out. They don’t have as much at stake and tend to care less about fund politics. Can be valuable allies, but rarely make any consequential decisions. They can certainly help make your case behind the scenes.
EIRs / ex-CEOs: persons using the VC fund as a stopover to doing another company. Could a strong asset if they focused on the same business earlier in their careers. They could actually become your CEO if you need one. They are usually seen as “experts” and their opinion matters. Important to have on your side.
Understand “fund bias”. It is important to slant your presentation correctly to protect yourself against unstated prejudices a fund may have. If a fund has had one big hit after another, they tend to have a negative bias toward any company proposing smaller, more down to Earth businesses. These funds tend to look for the next Google. Ask yourself, does my business have the right outcome down the road to move the needle for these guys? If a fund is looking for “big” you should pitch “big.” If they are comfortable with getting you through a couple of rounds to an acquisition, pitch small(er), but, remember, everyone still secretly wishes for the next Google. Does the fund have enough cash to get you through the four series of funding you will need as you build the next Groupon? Are they early in their fund’s life-cycle and willing to take more risk?
- Understand “fund focus”. Are these people comfortable investing in your sector and at your stage? Contrary to common belief, most VCs are not daredevil risk takers. Venture Capital is about pattern recognition, not risk. And once the fund recognizes the routing that works, they are unlikely to step outside their comfort zone. Strange things happen, but odds are against it.
- Formulate a meeting strategy. Schedule a 30 minute call with the coach a week prior to the presentation. Explain your understanding of what you are going to present. Ask him to confirm or help with any personality interpretations you have made. Ask for advice about people who will be in the room and what they want to hear. Write it down.
- Bring a team and understand who does what. You should be bringing a team to these presentations. One of the best posts on this subject comes from one of my favorite VC bloggers, Mark Suster, and can be found here. Make sure everyone knows who is covering which questions during the meeting. It’s shouldn’t be a “CEO show” with a bunch of silent cameos. Everyone should have a chance to say something. Make sure the CEO knows what every team member will say. Make sure everyone on your team knows whom they are covering.
- Follow the basic presentation you gave during the first meeting, and do not change it dramatically as most people will have seen your original deck. Do adjust the pitch based on the people dynamics you uncover and the fund bias that may have been determined.
- Take about 30 minutes. You have an hour, but the pitch should be a little shorter than the first meetings’ one because there should be more questions and you want to answer all of them. You also want the partners to have time for discussion after you leave.
- Give technology enough time but do not let it be the focus of the presentation. You should answer the questions from the more technical members of the fund, but, offer to do an in-depth walk-through as a follow-on. However, the CEO (yes, the CEO) should know how the product works and be able to cover the basics. Don’t ever say something is “over your head” — you are the head of the company, nothing should be over it.
- Dispel fears about competition and expect the inevitable “what about?” questions that will come (usually from the more junior members of the fund). Know your competition, especially if you see people in the fund with LinkedIn connections to competitors’ CEOs. You should have a list of “what about…” questions they will ask and know your answers to those questions. You should ask your coach who else in your space the fund has seen. Obviously, if they invested in one of your competitors (and it’s not public), they will not invest in you so you shouldn’t be doing this presentation at all.
- Sell your value proposition from an investment perspective. “You give us X dollars and in X years, you will have another Y (Google, YouTube, LinkedIn…) on your hands, worth 10x the dollars, and have a hand in creating one of the major players in the industry that you can put on your “exits” web page.” Maybe don’t make it that blatant, but that’s what you want them to think.
- Explain your valuation expectations and where the proposed funding gets you. This is important. You do not want to go through a few weeks of due diligence only to find you’ve set these expectations incorrectly.
- Let them know who else you’re seeing. At this point, this should not delay the decision. VCs should not be waiting to hear what the others say. However, if you’re talking to a competing fund (yes, all VCs are friends, but some are better friends than others), you might want to make that known. Talking to rivals adds fuel to the fire.
- Try to smile and make friends. You hope to work with these people for several years and they should like you and you should like them. Make sure everyone on your team understands that. If there is anyone in the fund that you just don’t like, chances are, things are not going to go smoothly.
- Don’t say “it’s a great question” (unless it really is and very few are). If is not a good question, or an obvious one, chances are the other people at the table know it and you are not making yourself look any better.
- Leave with minimal expectations. Understand that investments rarely “happen on the spot” (if they do, it’s very unusual and you should ask yourself “why” and “perhaps I should shop this around some more.”). The decision should come during the following week.