How to handle too much of VC Interest?
There are times in a startup when there is just too much of investor interest. Typically this happens when you get some mega coverage (in blogs/press) or announce key partnership/customers. For instance, startups that launched at UnPluggd have been sharing the VC interest they received post the demo.
Is that good? bad? Well, if you are looking for funding – there isn’t a better time when you have too many suitors. So how does one handle a situation like this?
Here are some tips/suggestions :
1. Control that excitement.
Do not get overly excited if you are getting calls from VC firm. Stop forwarding those emails/updating FB status that they ‘got a mail from a <insert-a-big-VC-name> fund’ – a lot of first-time entrepreneurs go thru’ this and while this is quite natural, do understand that it’s the firm’s job to reach out to the upcoming/hottest startups. And like I said, if you have been in news for some reasons, you will be in huge demand.
2. Assign a single point-of-contact.
Always and always, assign a single point-of-contact in your company (usually the CEO) to face the investors. This always helps, as apart from having the context of investors’ calls, it also keeps the company stay focused (funding or no funding).
3. Ask: Are you moving ahead?
If you are still talking to associate/analyst after the second meeting, chances are that you aren’t moving ahead and discussion isn’t going in any direction. Always remember that if a VC firm is really interested in investing in your startup, they will get a partner onboard asap.
I know of few instances where the associate pulled in the partner within 30 minutes of discussion and a term sheet was sent within a week of the meeting.
If you are a hot startup (as in really hot) and have just too-many VC interest, a bit of ‘hey! I need to close this asap’ helps. It also helps you understand whether the firm is interested in going forward at the speed you’d like to OR is a bit unsure of.
Take a call.
4. Do NOT spend $$s until you have got $$$s.
At UnPluggd, Aloke Bajpai (iXIGo founder) shared how the company spent money in advertising with a certain hope that they will raise a round from a VC firm (the funding discussion was initiated by the VC and not by iXiGo), which didn’t really happen.
That is, do not start spending in flight tickets, unless it’s the final meeting.
5. Timing matters
Do not be that guy who was wooed by a lot of girls, starts dating all and reaches a point where each girl moved on thinking that you are dating somebody else.
Explore investors, filter, look for common beliefs and make a commitment.
You are in the business of building a business and not in the business of raising fund (unless it’s the case!).
6. Do the ground work
A lot of VCs talk for talking sake. And every one of them will talk to you. Do you really want to use fruitful coding time talking? The best way to approach this problem is to identify associates / partners who have done work / funded similar startups as yours in the past. There is no use talking app platform to a VC who has only invested in Ecommerce in the past. Typically talk to that person (basic LinkedIn profile search etc. helps) rather than someone else.
7. Last, but probably the most important bit.
Ask yourself – are you ready? Going back to what I shared earlier (“Explained: How we chose startups to demo at UnPluggd”), an important point to keep in mind is whether you are still running a V0.1 of the vision or you are halfway there.
If you are still early, it’s time to stop and think whether you can handle VC interest or not.
I know of this Bangalore based startup (launched in ~2008) that was one of the hottest startup, launched with a lot of fanfare and thanks to all the buzz, founders ended up wasting 6 months chasing VCs, while the product was in a very jagged stage.
Six months later, they realized that the needle hasn’t moved, but unfortunately, the users moved on to other services.
Not that you cannot (or should not) raise money when you are in early stage, but knowing where you stand always helps.
So what’s the next best option? Well, meet a whole lot of VC firms, build relationship but keep shipping.
What are your thoughts?
[With inputs from Pratyush Prasanna. Image credit]