The decision for a founder to take an investment from a venture capitalist (VC) firm and the decision for a VC firm to invest in a founder depends on the founder-investor fit.
How Founders Choose Their Investors
What founders care about:
1. The best deal terms
2. The speed of the investment decision
3. Brand of the individual partner leading the investment
4. Specific expertise from a former founder
Founders have much more desires, making it crucial for VC firms to find founder-investor fit as they think through their strategy.
VC Firms Strategy
To find founder-investor fit, VC firms focus on:
1. Diversity across gender, race, age, and socioeconomic background.
1. E.g. The BLM movement has shone a light on the lack of Black VCs.
2. Generational transition
1. Why VCs care about this:
1. Investors active during the dot-com era are beginning to retire.
2. A new crop of younger, more diverse investors in partnerships is rising.
3. Brand at the firm level and individual partner level
1. There can be tension between a firm's brand and an individual partner's brand.
The Decade Ahead
Focusing on founder-investor fit can lead to a competitive advantage for a VC firm.
Raising money is the second hardest part of building startup after finding product market fit.
Investors are not sympathetics.
Investors are skittish because they make large decisions with limited domain expertise.
Bootstrapping (= Consulting)
Some “bootstrapped” companies started out as consulting companies and used earnings to turn into product companies.
Consulting route can take years for efforts to fruition.
How to Approach Fundraising
Have low expectations and understand that deals fall through.
Prioritize working on startup and then investors, especially with smaller founding team.
Be conservative and lock in eager investors quickly because of their skittish nature.
Be flexible with financing.
Demonstrate qualities that show founders can survive independent of investors.
Don’t take rejection personally because statistical odds are against every founder.
Be able to switch to consulting if necessary.
If possible, avoid novice investors.
Understand if investors are indecisive because waiting time could potentially destroy companies.
Ultimately, startup founders need to be aware of dangers during fundraising, and venture capital investors need to also be aware of how their indecisiveness could destroy a company.
Over the past few years less entrepreneurs are pitching with a slide deck.
However, investors are evaluating how founders convey a story and a deck illustrates that skill.
Founders can have success without a deck, but this isn’t always optimal.
6 reasons why good presentation decks are impactful:
Importance of narrative
A slide deck transports the listener to the conclusion to invest
Controlling the cadence
Slide decks help organize arguments and keep them succinct
Helps use time wisely
Conveying statistics is much easier in a presentation
Best entrepreneurs are focused on numbers
Storytelling never ends
There is always a need to attract investors and customers and practicing storytelling is key
Better storytellers are often better entrepreneurs
The process itself is useful
Creating a presentation is a forum to make sure everyone is one the same page
A structured presentation helps organize key parts of the business
Be like Steve
The top entrepreneurs like Elon Musk and Jeff Bezos all had some sort of presentation
It makes sense to go without a presentation in a get-to-know you situation with an investor
Great storytellers have a competitive advantage