If you want to source venture capital money for your small business, you can perform a quick internet search and find a lot of advice about how to create a pitch deck. However, you won’t find as much information about what do to after you successfully pitch VC investors. Even if you perform superbly in your pitch, you won’t get funding right away. Instead, you’ll launch into a bit of a meeting gauntlet. If you can survive the gauntlet and keep the venture capitalists interested, you may just end up with the new capital that you need to take your business to new heights.
Your First In-Person Meeting
The first in-person meeting (which may or may not arrive after an exploratory phone call) is not designed to let the VC firm come to a decision. Don’t walk in expecting a commitment right away. This is a bit of a first date for the two of you, and you just want to make sure that you don’t give them any reasons to not schedule a second date. The standard process begins by meeting with just one member of the firm. The first interviewer is there to screen you and your company. You may meet a partner or principal at the firm, but it’s more likely that you’ll meet with an analyst or associate. Ideally, you want to meet with a partner, but associates are important members too and you shouldn’t feel slighted just because you don’t get to meet a big shot right away. If you don’t have a large executive staff, it is probably best to just bring the chief executive officer to the first meeting. This helps build one-on-one rapport and ensures that you won’t have competing visions or conflicting answers.
Verifying and Following Up
Once you survive the first meeting, the VC firm should schedule a second meeting. Normally, this meeting involves more than one associate or partner for the firm someone there to confirm the suspicions of the first interviewer. Because a new set of eyes and ears will be present in the meeting, you’ll probably repeat a lot of information from the first meeting. If there’s new content in the second meeting, most of it will be a followup on unanswered questions or unfinished topics from the first meeting. It’s probably a good idea to prepare for these in advance by reflecting on the initial meeting and considering, “What would I ask me, if I were them?”
The Diligence Process
If the VC firm feels comfortable with your basic business plan and your leadership/business acumen, they’ll schedule diligence meetings. These meetings get down to brass tacks. You should expect their analysts to ask a lot of questions about your numbers. Common areas of focus include:
- The number of customers, clients, or users for your product
- Lifespan and total uses of your product
- What plans you might have to improve or grow your product offering
- Your inventory and churn metrics
- Financing past, present, and future and your major expenditures
- (Sometimes probing) personnel questions
If the VC firm interviewing you is busy, smaller, or distant, there is a chance that some of the diligence meetings take place on the phone or over some video chat. It is important to remember that the VC firm actively looks for problems and pitfalls during every stage, but no more so than during the diligence process. Expect a lot of touch inquiry and maybe even some ambiguity from your potential investors.
The Full Partners Meeting
Depending on the size of the firm you work with, this may come in stages, with a first meeting including several partners but not all of them. Often, you’ll just skip to the full partners meeting. The full partners meeting is the last step in the courtship process, unless there are small odds and ends to follow up on afterward. Many VC firms like to set up this meeting in a way that applies pressure. You should expect to walk into a board room full of partners, begin presenting, and potentially get interrupted throughout your final pitch. You have reasons for optimism, however. After all, you only get invited to a full partners meeting if your odds of getting an investment are relatively high. Most full partners meeting last well over an hour, and very few point persons at a VC firm are going to waste all of their partners’ time on a meeting without serious potential. If you developed a good relationship with some of the VC personnel during the past meetings, it’s totally acceptable to ask them to tell you about the partners you are going to meet. Consider asking them to point out which ones are the most difficult to pitch and what may work best to convince them. How the final decision is made depends on the firm you meet with. Some have a chief partner, while others use a more congressional style. Either way, the next step in the process is either rejection or a term sheet. Above all else, venture capital firms want to see the quality of your team and the potential of your business model. They see hundreds or thousands of possible deals in any given investment cycle, so it makes sense that they’d put even the best opportunities through the wringer. If you navigate the process without messing up too much, you may just end up with a powerful (and wealthy) ally.