How and Where to Find Your VC

Research your sector

A key starting point in reaching VC’s is to identify those who are most likely to be interested in you. These VC’s also are likely to be the most useful to you, because they can bring critical sector-specific business judgment and networks as well as cash.  So, how can you find them?

First, do some research on your sector. Identify the key firms (and the specific individuals of those firms) that have been active in making investments in your sector and at your stage of investment.  Keep in mind that this may be a double-edged sword – if they have invested in businesses that are your direct competitors, they may be unable or unwilling to invest in you. That being said, our most successful introductions are where the emerging company is asking us to knock for them at an open door.

Remember that the US is comprised of a number of different markets, and different VC communities (and the same is true in the UK and continental Europe).  While Silicon Valley has the deepest venture capital market, it is highly competitive and is not necessarily the best place to look for investment in all types of businesses. 

Also, most early stage VC investors will want you to locate, with a founder, in proximity to the investor (if you are not already there), and the Valley is a very expensive place to do business, with fierce competition for talent. Additionally, most US early stage VC’s are likely to want you to have US traction before they will consider you for investment.

Consequently, in the US, you will want to consider the following regional alternatives:

• FinTech/Ad Tech/Publishing - New York
• Biotech - Boston/Washington, D.C.
• CyberSecurity - Washington, D.C./New York
• Media/Games - Los Angeles/New York
• Insurance - New York/Chicago
• Emerging Markets - Miami/New York
• Hardware/Enterprise Software - Seattle
• Various - Austin

Also, become familiar with the corporate venture units in your space. They are playing an increasingly large role in early stage funding, and may help give you the commercial credibility that you need to deal with established counterparties.

Networking and Trade Missions

Attend conferences, conventions and other programmes where those interested in your sector can be expected to attend. In many cases you will be able to see an attendees’ list from a prior year and determine whether the event has been of interest to investors.  Many such events are very large, of course, and it is difficult to make contact with potential investors unless you have planned out, in advance, how you would propose to do so.  If at all possible, pre-arrange meetings with investors whom you would like to meet, or obtain introductions from other attendees whom you know.

Take advantage of trade missions and other pitch opportunities that may provide introductions to interested investors. In the UK, for example, the UK Department of International Trade, London & Partners/Mayor’s International Business Programme and Scottish Enterprise take regular trade missions of UK-based companies to the US (and elsewhere), typically with a specific sector focus. These missions are sometimes led by prominent members of the UK government, such as the Prime Minister or the Mayor of London, and this can help to attract media attention. Participation on trade missions may provide a variety of opportunities for you to meet interested investors, as well as more general opportunities to raise your profile and encourage investors to contact you, rather than vice versa.

Advocates, advisors, and your wider network

Recruit angel investors and non-executive and advisory board members who are well-connected in the markets/sectors on which you are focusing and are invested in helping your business succeed. These key connectors will not only help you attract investment – they may also provide invaluable connections to potential customers and partners, and their participation in your business may enhance your company’s credibility in the market.

In a related point, use your wider network to obtain introductions. Contacting investors on a “cold call” basis is always very difficult.  Don’t hesitate to ask your professional advisors, mentors, accelerators, investors, board members, governmental contacts and others to introduce you.

Diligence

Finally, diligence potential investors in the same way as you would expect them to diligence you.  Understand the dynamics of the environment in which they operate.  For example, is their current fund coming to close, such that they are unlikely to make early stage investments in a new venture? Would an investment in your business be likely to generate, in the relevant time frame of their fund, the kind of return that they need to be able to produce? Particularly if they are a larger and higher-profile fund, what will be the impact on you if they invest in your current round and then decide not to invest in your later rounds? Also, based on their reputation in the market, are these investors that you would want to play a key role in your business?  Are they likely to stand by you if things do not go entirely accordingly to plan? You should view potential VC investors as partners in a marriage – you will be together for a long time, and before you spend a lot of effort in persuading them to invest you will need to determine whether you actually want them to invest!

* * *

This discussion is not intended to provide legal advice, and no legal or business decision should be based on its contents. If you have any questions or comments, feel free to contact [email protected] or via LinkedIn here.

You will find Bob’s other weekly blogs for emerging and growth companies on US issues, international expansion and early stage financing here: http://bit.ly/2lP5uMP