VCs and the entrepreneurs they invest in need to have a clear mutual understanding of their goals at every stage of their relationship

Startups are a challenging beast. Full of high highs and low lows. Nowhere is this truer than in dealing with the venture capital (VC) world. Sometimes you’re the next hot thing and everyone wants a piece and other times you’re standing in the corner with no one to dance with. But things do get easier with experience. Having spoken to a lot of VCs, there are some identifiable patterns of what to look for and how to approach conversations.

Some VCs care about more than money, some care about you

After talking to a number of VCs, there are two common themes that seem to emerge. There are VCs that see investment as a relationship and an investment in people. And there are VCs that see investment as the purchase of a financial instrument.

Both are looking to make a return on their investment of course, but they have different viewpoints, timelines and expectations. The first, relationship VCs, tend to have diversified portfolios, look for solid growth, they also have an experienced team that will provide support as you grow and tend to have a longer timeline for their investments.

Also Read:How to avoid the pitfalls of starting up

The second, financial driven VCs, tend to look for hyper-growth startups in industries where M&A is prevalent and look for short, 2-3 year, opportunities to grow a business and push for an exit event. Sometimes these VCs can be one and the same, one side of the portfolio looking for longer-term investments while the other looks for high risk, high return.

For startups looking for investment, it’s always tempting to be led on by financial driven VCs as they offer large sums and all the opportunity that this kind of money brings. But it’s important to evaluate this against the founder’s mindset and goals for an exit rather than get caught up in the whirlwind of investment land.

What VCs look for changes as you grow

The stage of the business lifecycle that you are in is very important. What VCs look for from seed, series A, B to C or D changes dramatically. This is understandable. For anyone that has scaled a business, one of the first things that becomes very apparent is how quickly the focus of the management team changes.

At the early stages of investment, the focus is on the people and the idea. Can the management team and their skillset be relied upon to bring this idea to fruition? Do they have the skills, stamina and determination to grow a product out of nothing?

You’ll find at this stage VCs are interested in you, your background and want you to really sell the product. Not just for the product’s sake, but to understand how you as a leader will take the product to market.

As the company progresses, the focus of VCs shifts to the product and market. How are you finding product market fit? What early wins do you have? Are you maintaining momentum? This is where a true product and market CEO leads the way. VC’s want to hear how the product is evolving and what impact this is having on revenue.

With scale comes a different set of problems and VC’s are acutely aware of this. As companies hit product-market fit, growing pains start to show. Companies often slow to a snail’s pace when they are approaching series C or D as they simply don’t have the managerial firepower to scale people. The conversation with VCs becomes one of “this is how were are going to go from 300 people to 1,000” or “this is how we are going to use our next round to prepare for an exit event”.

It is important to constantly evolve the way you communicate to VCs, understand their viewpoint and ask them as many questions as they ask you.

The story matters

Businesses are, in the end, a group of people working towards a common goal, and the key outcome of meeting with VCs is getting them to join that group. Just like with any new employee, customer or anyone that interacts with your company, VCs need to be aligned with your mission.

Stories are the most powerful way to do this. Whether or not your financial growth, net new sales and negative churn sparkle, startups still need a human story behind them to ‘sell’ themselves to potential investors.

Also Read:7 steps to increase the value of your business (before you sell)

This is because no startup in the world grows on a linear line. Every piece of information needs a story with it. Why did you grow so much in Q1 and not so much in Q2? What is it that caused your largest customer to stay with you despite cheaper alternatives being on the market? Why did you decide to scale engineering before sales? Every dollar has a story behind it and using this to create a connection in the mind of VC’s helps you stand out in the crowd of companies that they are reviewing.

Every VC conversation is different (although you might start to feel them melting into one after a while). It’s important to understand the importance of relationship building. VCs are looking for the best companies to invest in and often do this within a defined industry where they see growth happening. With this in mind, you should always be focused on building relationships, keeping in touch and keeping your story at the top of their mind.

—

Editor’s note: e27 publishes relevant guest contributions from the community. Share your honest opinions and expert knowledge by submitting your content here.

Image Credit : rawpixel

The post 5 things I learned from talking to 50 VCs appeared first on e27.