When we think about pitches, most of the focus is on entrepreneurs pitching investors for capital. But VC can be competitive, particularly for interesting deals, and in many cases, the pitch meeting is a two-way street. Some of the best later-stage investors walk founders through an institutionalized “reverse” pitch. If you find yourself in the fortunate position of being oversubscribed, you’ll likely look to build the best investor base and find the right partners for your journey.
How do you decide who you should have in your cap table?
- What is important to you? Are you looking for help and expertise in hiring, product strategy, customer development, fundraising, coaching, therapy, etc.? Ask for specific examples of how a prospective investor has delivered in the areas you need support.
- How accessible is the investor? Outside of formal check-ins (i.e. board meetings) that you might have, is the investor easy to reach when you need him/her ad hoc? At Version One, we effectively act as a hotline: we strive to be the first investor that our founders call and often times, it is because we are the most responsive. On the flip side, you also want to know what expectations an investor has of you: somewhere on the spectrum of helicopter parent to uninvolved check writer… what will work best for you?
- How do all the partners of the fund feel? Every fund has its own investment decision-making process. Some require all partners or a certain number/percentage of them to be on board whereas others require a single champion. If you sense that you’re in a situation where the entire partnership didn’t reach consensus but you have advocate(s) enthusiastic about backing you, take the time to understand why by meeting and speaking to everyone in the firm. And more importantly, learn whether and how all partners buy into a deal of non-consensus nature after the fund makes a commitment.
- What’s the investor’s thesis? How well are you aligned with the potential investor? If the VC were to build your company, what would s/he do? What is his/her vision for your future? How well do they understand your challenges? By asking him/her to pitch your idea back to you, you will get a better sense of his/her conviction and passion for your business. This is a great way to see how strong of an advocate they will be for you.
- What are the experiences of other founders in the investor’s portfolio? It’s important to look at not just the big successes (which you’ll probably hear about), but also the failures. What did that investor do for a founder when times were really tough (i.e. co-founder problems, personnel issues, company pivot, customer fall out)? You need validation that an investor will actually be there for you in the capacity that you need them.
Lastly, dig down into how an investor behaved during new financing rounds or during exits. Ask other founders and co-investors if the VC has always acted in the best interest of the company or just themselves. In the former case, I’ve heard many stories of VCs unwilling to give up their pro rata rights to the point where it jeopardizes the round from happening and have even threatened to sue. For the latter: how has the VC supported companies as they exit for a profit, capital back and at a loss?
At Version One, our reverse pitch is a little different than a platform fund’s pitch since we’re a team of two. We don’t have the scale of a platform fund, but it doesn’t mean that we (or other smaller investors) are not value-add.
We are working on developing a “manifesto” of what founders can expect from us and hold us accountable for after we’ve invested. We currently have a biweekly check-in call with each CEO where we talk about everything from business strategy to hiring, fundraising, mental wellness, and more. But we plan to “formalize” our learnings and best practices on board meetings, metrics, building purposeful culture (including diversity and inclusion), compensation, coaches, hiring checklists for specific roles, list of best service providers and more.
We hope that this exercise will not only bring some scale to the functions we’ve been doing over the years, but will also allow new and prospective founders to better understand what they can expect as part of the Version One family.
In the meantime, we’d love to hear how you decided on your investor syndicate? What reverse pitch resonated with you? And more importantly, in working with your favourite investors, what has moved the needle?