Similarly to an Ideal Customer Profile, it’s important to think about what your “ideal” investor looks like.
Here are some dimensions to explore:
- Level of industry expertise — this will determine the kind of strategic advice is that you can get.
- Geographical footprint — Home market vs. pan-European or even global? If you have plans to scale internationally soon, this could be super relevant.
- Size of firm and resources for support — Larger VC firms tend to have more resources and often can help with operational tasks such as recruiting. Smaller firms, on the other hand, are sometimes more specialized and work closely with their portfolio companies in very specific ways.
- Size of fund and follow-on funds — Larger funds have more money to deploy and can often finance your startup throughout several rounds. However, their business model works only for very large outcomes, so they might put more pressure on their startups to grow very quickly, which changes your risk profile. Smaller, more specialized funds often work with larger firms to arrange follow-on rounds, so that can work as well. Make sure to always ask funds for their follow-on policy and reserves.
- Size and depth of network — Most VC firms are well connected, but the size and particularly depth of their network differs. Some firms (such as btov Partners) work closely with a network of angel investors that have a background in many different industries. This provides a more readily available and trusted network than just having a lot of business acquaintances.
- Stage fit — There is a trend towards VC firms investing in pretty much any round and at any ticket size, but in reality most are still specialized on certain stages and develop different capabilities and business models depending on this. A pre-seed specialist is very different from a Series A firm and a Series C+ growth fund. Make sure you understand the sweet spot of those investors and how that fits in with your fundraising strategy. For example, if you are raising a seed round and approach investors that specialize in later stages, you will hear a lot of “too early for us” declines and waste a lot of your time.
All of these dimensions are affected by trade-offs. Despite what some VCs will say, you won’t find an investor that is perfect across every dimension. And, of course, you might need to choose someone who is less than ideal.
It is, therefore, important to understand your preferences clearly and align the founding team and existing investors around this. Rank the dimensions above in a clear way and exclude dimensions that you don’t think are important for you.
Managing Your Investor Process
A helpful way to think about this process is to use a funnel just as you would for any marketing and sales process.
For a follow-on fundraise, the funnel stages should look something like this:
- Prospect, no interaction yet (these would be firms you would like to talk to but haven’t yet
- Initial informal calls (these are investors you had an initial discussion with, maybe based on their own outreach, but not pitched formally
- Formal reach out (investors you reached out to with a clear “we’re fundraising” message)
- First call (initial pitch, typically to 1–2 people at the VC firm)
- Second call (often with additional people from the VC firm and from your side)
- Initial due diligence (the VC firm will conduct reference calls etc.)
- Investment Committee/Partner/Management Meeting (you present to the entire partnership, which is typically the final decision point)
- Term Sheet
- Full due diligence (the VC firm analyzes your business and negotiates contracts)
- Declined (the VC firm was not interested)
- Not interested (you were not interested in working with the VC firm)
The best way to manage this funnel is to either use your existing CRM system or have a separate lightweight system, such as a Kanban board in a tool like Notion or Trello. This is also important as it gives transparency to your core team — and ideally also to your board — so that everybody is on the same page at any time.
Finding the right investor at the right stage is not trivial, so background research on your prospective investors is also crucial. You can use your Ideal Investor Profile as a guide and try to substantiate the most important points for every investor that goes onto your long list. Utilize resources like Crunchbase, Dealroom, and LinkedIn and get references and information from your own network as well. VCs will conduct due diligence and so should you.
When entering into a dialogue with a VC firm, make sure to ask for their decision process and timeline. It is important to be aware of these factors because you want to coordinate parallel processes with multiple firms in an effective manner.