• How-to

While approaching a VC may sound like just dropping a few mails and making a few calls, you would be surprised to know that it is almost a minor science.

Know your firm
Venture Capital firms are pretty linear in their structure across the ecosystem. Typically, there will be anywhere between one to four persons, depending on the firm’s size, who will be making the top-end decisions e.g. whether or not to invest in your startup. These are called the General Partners.

Below that rung come the Principals who are basically mid-management professionals promoted from an associate position or experienced professionals from others field such as banking.

These Partners and Principals are assisted by a support staff, some of which are on the investment side, such as analysts, associates, and investment Managers, and some of which are further support staff.

Hone in on your man
It is important to understand that it’s the Partners who have the final say in an investment decision. While the Principals and analysts may influence the final decision, but the final say will rest with the Partners who will take a group decision.

So, your aim should be to get at least one Partner to believe in your offering and lead it from the within the group. If he believes in it, he will do all he can to turn the tide in your favor.

Ideally, this Partner should be from your field of expertise. For example, if you are making apparel, the Partner who has been in the textile and apparel industry would be the one you should target. He could also be the one who has previously championed the case for an apparel manufacturer. If convinced after his due diligence, he would then transfer his confidence in you onto others in the group.

Making the move
You made a firm shortlist and now you should have made one for the Partners you would target at these forms as well. Now go ahead and connect with this Partner.

The best way to do so would be to get a personal introduction. Flip through your address book (and Linkedin profiles) to scope out common connections. If there are any common connections, ask him to help you set up a meeting or at least introduce online. Send your teaser document through.

Alternatively, try hooking up with one of the analysts or associates who are easier to talk to. Send your teaser document to them first and convince them to get you connected with the targeted Partner.

Mass Attack
Ideally, you would be talking to firms who have funds to invest. Line up these firms according to the funds they have and their interest in your sector. Your next move must be to approach all these investors in the same week.

While this may sound messed up, there is a reason behind this. Like them, you too need to compare what they have to offer. That is done by comparing term sheets. And it is done to truly understand what your market value is.

If you stagger your approach, you will never have multiple term sheets at the same time and hence no clue to what your current market value is and can result in you being shortchanged.

This is the third of a multi-part series.
©Entrepreneur April 2010

Tags:
funding, VC, venture capital