Venture capitalists (VCs) invested $14 billion in biopharma startups in 2019, helping these companies survive and grow past the cash draining development phases. Are you out there looking to get a piece of the 2020 funding cake? We’re here to help! MSC Associate Stephanie Mattson, with experience from one of Sweden’s largest life science funds, shares the dos and don’ts of interacting with VCs – and it might make or break your deal. This guide takes you from the initial choice of which VC firm to contact all the way to taking the next step when you have the 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, they will have a lot of questions, which requires you to put in a lot of work to prepare materials and answers questions. A VC will lose interest if you don’t respond quickly enough or if your responses are incomplete or unprofessional. Hence, the take-home message to startups is not to engage with too many VCs at once. You want to have time to woo the investor.
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; which development phase the company is in, the size of the initial investment, the size of the total commitment needed and the level of engagement in the company (taking a Board seat, operational work, etc.). 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. Turn your attention instead and contact a VC that is a better fit with where you are and what you need. You can usually find this information on the VC’s home page, but don’t forget also to analyze what deals they have made in the past to understand their preferences.
Extra tip: If you’re a public company, you should investigate if the VC invests in public companies at all.
You should also ask yourself if the VC is within your sweet spot. Before you contact VCs, have a clear understanding of what type of commitment you’re looking for. What does my company need in the long-term? What kind of help do I need from my investor (contacts, expertise etc.)? The investor will probably ask you what you expect of them fairly early in the process and expect you to have a clear answer to this question. An answer that only revolves around an amount of money to an investor that usually takes an active role in companies will lead them to think that you won’t use their resources optimally.
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. There’s probably someone at the company that will give you better odds to score a meeting – and you’ll want to know who that someone is. Study which areas each investment manager specializes in, what they usually talk about in different contexts (LinkedIn, summits etc.) 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. Make sure to show them that you are trustworthy and easy to collaborate with. To obtain trust, you should be honest and straightforward in your communication. Investors may 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 and something 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. The take-home message is that you shouldn’t bring it up because you’ll probably lose that discussion. 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 investors questions.
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.