Venture capitalists (VCs) invested $36 billion in biopharma companies in 2021, helping these companies survive and grow past the cash draining development phases. Are you out there looking to get a piece of the 2022 funding cake? We’re here to help! Our team with extensive experience of fundraising shares our best advice for successful interactions with VCs – and it might make or break your deal. This guide takes you from preparations to selections of the right VCs and all the way to taking the next step with an investor on the hook.
Firstly, use your time wisely – don’t spread your efforts too thin
Entertaining a VC can be time-consuming. If they find your company interesting, you’ll find many questions coming your way which will require a lot of work to prepare materials and responses. Do be aware that a VC will lose interest if your responses aren’t timely and complete. Unprofessional behavior might also be a deterrent. A sensible approach for startups is to limit the number of VCs engaged at the same time. You need to have time to woo the investor.
But there’s more to consider; fundraising follows a rather straight forward process with each interaction having a specific predetermined objective to meet. If met, you’re on to the next step in the process. If the VC declines further discussions, the experience is still worthwhile as learnings can be used with the next VC as they’ll follow the same process.
As a startup, you’re under constant pressure to secure funding but it’s important to have realistic expectations that can be relayed to overzealous investors. A good measurement in fundraising is that it often takes 6-12 months or longer.
All VCs are not the same, find the ones with an appetite for your business
Every VC firm has a sweet spot determined by the type of companies or technologies they invest in such as development phase, initial investment size, total commitment needed and level of engagement in the company (e.g., taking a Board seat, operational work). As a company looking for funding, you should aim to be within that sweet spot, and if you’re not – don’t waste your time. Instead, turn your attention to a VC that is a better fit with the stage you’re in and your needs.
You can usually find relevant information on the VC’s web page, but also look at the deals they have made in the past to understand their preferences. It really is paramount to know what the VC is looking for right now and within the next 12 months.
Extra tip: If you’re a public company, you should investigate if the VC invests in public companies at all.
Before you contact VCs you’ve identified, you should have a clear understanding of the type of commitment you want. Questions such as long-term needs and help needed from the investor (e.g., contacts, expertise) should be cleared up beforehand. The investor will probably ask you what you expect of them early in the process and expect you to have a clear vision. An answer that only revolves around money will lead an investor that usually takes an active role in companies to think that you won’t use their resources optimally. Finding synergies with one of the investor’s existing portfolio companies is also a good way to show that you’ve done your homework.
Speaking to the right person increases your chances of success
Once you’ve identified the VC firms of interest, it’s time to make contact; but your research shouldn’t end here. The easiest is to find a common contact to introduce you to the investor, which most likely will result in that the investor will review your slide deck and provide honest feedback.
If you can’t find a common contact, your next step should be to try to find which person will give you the better odds to score a meeting. Study which areas each investment manager specializes in, what they usually talk about in different contexts (e.g., LinkedIn, summits) and where their investment focus lies. Another aspect that might be equally important is timing. If an investor is new to the firm, they’re probably very focused on building their portfolio. This means that they’re probably taking more meetings than other investors at the firm. If you’re lucky, the newly onboarded employee is also specialized in your area.
VCs love warm introductions. Try to find a common contact in their network. Do you perhaps know the founder or Board member of a company they’ve invested in previously?
Gaining trust and making a lasting first impression – skip the NDA
Once the investor has agreed to take a meeting, you need to make the right first impression. Remember that the investor is contemplating getting into a long-term engagement with you, your team and, your company. It’s important to understand that your job as an entrepreneur is to make your contact person at the VC firm feel comfortable to introduce your company to his colleagues. Make sure to show them that you are trustworthy and easy in collaborations by being honest and straightforward in your communication. At this stage, it’s not about drowning the investor in information but to instead keep the momentum and interest in the company.
Do note that investors may very well reject investment opportunities because they feel the entrepreneur is being evasive when answering questions or that they’re hiding something.
Prior to the first meeting, you may feel the need to ask the VC to sign an NDA. Just be aware that most VCs won’t agree to this. From their perspective, signing an NDA is a liability risk that may hinder them from making the best decisions for their investment portfolio as a whole. VCs often meet companies working with similar business ideas and may have already invested in a company that is similar to yours. Therefore, signing an NDA before knowing anything about your technology or growth plans may impede their current business and ongoing discussions. Our recommendation is that you shouldn’t bring an NDA up because it will probably lead to losing that fundraising opportunity. You can, of course, avoid speaking about your technology’s most sensitive aspects until after the first meetings.
Time to pitch – keep it simple and be ready for questions!
The first time you sit down with the investor to pitch is precious time that any entrepreneur wants to maximize. However, this often results in an information-packed pitch that takes a long time to walk through. This is a classic mistake. Many investors will hijack your presentation and bombard you with questions. It might be because they are bored and want to have more of a dialogue, but most often it’s because they’re interested and want to know more – so see it as an opportunity to engage and show off the parts of your tech or business case that stirs their interest.
Our best advice is to have a short, direct presentation and to know your presentation well enough to be able to present it in a random order. And last but not least, be well aware that your reaction to questions and interruptions during the pitch can make or break your deal. Investors want to see a flexible and passionate entrepreneur, so do your best to accommodate the investor’s questions and start building a fruitful relationship right away.
Curious about what to bring up in your pitch deck? Check out our previous post on how to build the most attractive investor pitch deck here.