To Whom Should You Pitch?

Founders often ask me to introduce them to venture capitalist investors (VCs) that I know. My first question is always, “Which VCs do you want to meet?” Many folks don’t have an answer. I’m not asking to be difficult or to throw them off, but because not every VC will be the right fit. This question helps gauge their understanding of how VCs operate and gives us a starting point. There’s a strategy you can employ to find the right investors, as the last thing you want is to spend a lot of time talking to the wrong ones.

First and foremost, you must find investors who align with your sector or target customer, actively invest in your stage of the company lifecycle, and are currently investing. VCs’ fundamental job is to take meetings with companies, and they often emphasize how exclusive they are. It’s harder to get a VC check than to get into Harvard. For instance, “I took a thousand meetings this year and only invested in three companies.” Perhaps you shouldn’t have taken a thousand meetings. When starting your search, you really need to perform this filtering exercise because you don’t want it to be just another meeting. Some tools can help, but it also requires a lot of research.

Some folks have lists, like the one we put together of FinTech VCs. There are databases like Crunchbase, which costs a few hundred dollars per year. While you can filter through the data, it requires careful sorting. I especially encourage everyday founders to be cautious when approaching the biggest firms, as it can be challenging to get their attention and make it work in your favor. The first step is to find VCs who invest in your business stage: Seed, Series A, etc. Unfortunately, these definitions keep evolving.

One thing I encourage founders to do is think about metrics and how much they’re raising. If you have no product yet and need to raise a relatively small amount, seed or pre-seed investors are the right choice. If you want to raise a Series A, it’s not just about raising $90 million. It’s also about how your business has progressed and what’s happening now. Do you have metrics? Do you have customers? Is it $1 million in ARR or $100 million in payment volume? You might need to consider an extension or a second round if you have less than that.

I think the whole thing is silly. They should call them rounds 1, 2, 3, 4, 5, or ABCDE. You see these absurd labels like a $100 million Series A, which is essentially a private equity round, not a venture round. There’s real value in finding the right investors for what you’re trying to achieve. This has a lot to do with targeting by stage and sector. Do not approach a B2B fund if you’re running a consumer business (and vice versa). There are always exceptions, but it’s unlikely you’re the exception.

Raising money at some levels is like inception. Focus on giving yourself the most advantages, getting as close to winning as possible, and spending the least amount of time fundraising because investors can and will string you along.

Think about what will help you get really close to the right investor. If you’re in fintech, target fintech investors. If you’re in deep tech, go to deep tech investors, and the same goes for health tech. Don’t just rely on their websites; examine the investments they’ve made. Go through their portfolio to see if they might be the right fund for you. When did they invest in these companies? Is it the right stage? Is it the right sector? Did the company pivot? Did they invest in them in a different context? These are the kinds of questions to ask. Finally, ask yourself, is this company currently investing?

Especially in the current environment of 2024, many funds don’t have capital to deploy but still take meetings to look busy and stay engaged. They might raise more capital, switch jobs, or do neither. You need to find out when they last raised a fund, which is usually public information. Was it in the last year or two or five years ago? They don't have money for you if it was five years ago and they’re not investing from that fund anymore.

Check how much they raised and how much they’ve invested. They don’t invest the whole fund upfront; some are used for fees, and some are reserved for follow-on rounds. For example, if they raised $100 million, they may only deploy $30 to $40 million directly into companies as first checks. If they typically write $4 million checks, that’s ten companies or fewer. If you see them already doing that out of a fund, it will get harder to secure investment. Funds are more likely to say yes at the beginning of a fund’s life.

Considering these factors, you can reduce the number of misfires and bad meetings. While there’s some pride in meeting a lot of VCs and getting out there, deal fatigue is real. You’ll get tired, it’s distracting, and people will talk about you. It’s unlikely you’ll come up with something so amazing that someone who’s never been involved in your sector or stage will want to invest. Sure, there are exceptions, but your chances of getting a yes are much higher if you find an investor who already aligns with your idea and has thought about it for a while. You want to find the most alignment.

Step number one is to create this list. Start filtering and do the hard work. If you have an intern, use them to narrow it down. Next, prioritize based on the closest fit to the least close fit. Finally, figure out how you can get intros, get connected, and get your message across. This process will lead to the most successful and least painful fundraising experience possible.