How Many Venture Capitalists Should Be Contacted?
Entrepreneurs normally make one of two mistakes in contacting venture capitalists. Either they contact too few venture capitalists, or they contact too many. The typical entrepreneur in the first situation contacts one venture capitalist, asks the VC to review the proposal, and then waits patiently for a response. This can consume a huge amount of time, especially if the venture capitalist happens to be occupied with something else. The venture capitalist may have a portfolio company or, heaven forbid, many portfolio companies in trouble. The VC may like your proposal but may not have the time to spend on it.
At the other end of the spectrum, some entrepreneurs prepare a summary sheet and mail it out to 500 venture capitalists, assuming that this is the best approach. Although this is one way to contact many venture capitalists at once, it seldom moves them, because the mail-out is not taken seriously. The best procedure to follow is to select the half dozen venture capital firms nearest your company or those most likely to invest in your industry. Send them the summary and the full business proposal with a concise but pleasant cover letter. After the proposal has been out for one week, call each of the venture capital companies and ask them if they have received the proposal and if they are interested. This telephone reminder will move them along a little faster.
Every venture capitalist who claims to be "interested" and would like to meet with you should be approached with skepticism. You should spend some time on the phone with the VC to make sure there is a strong interest. If the VC seems to be genuinely interested then by all means set up an appointment to meet with him or her. The quicker you can get to a face-to-face meeting, the sooner you will know how interested the VC really is.
Some venture capitalists, having quickly read the proposal once, will tell the entrepreneur that they are interested in the deal. The entrepreneur, hearing the words, "Yes, I am interested," usually overreacts and assumes that the venture capitalist is ready to write a check. The entrepreneur is ready to board an airplane to visit the venture capitalist. You can avoid wasting time on such trips by asking the venture capitalist to clarify his intentions on the telephone. For example, if the venture capitalist says, "Yes, I am interested, but we can't make any commitments for six months," you might not see the need to visit him via airplane.
On the other hand, the venture capital firms might say they are interested in your proposal but after a few minutes of discussion, they might learn that the technology is more involved than they had perceived, and thus might decline. In short, a follow-up telephone conversation can help to clarify the venture capitalist's interest.
Discuss by telephone what the VC has in mind. If there seems to be some common ground on which you can put together a deal, then you should visit the venture capitalist. Running off to visit each venture capitalist will consume a great deal of your own time, so be sure it's worth the trip.
To be sure, most of the time you will not get a return call and will have to begin the arduous task of calling the venture capitalist to see if they are interested. Getting the attention of the VC is a terrible job. You will call and all too often will not be able to speak with anyone. Persistence pays off here. Just keep calling and trying to get to see the VC.
Most venture capital funds have Web sites with the names and e-mail addresses of the managers of the fund. Also on the Web site are discussions of what the VCs are looking for when they invest. Many sites have descriptions of the companies that they have invested in. You should read the site and customize your proposal to fit what they are looking for. Of course it is not possible to change a computer software company into a biotech company, but it is assumed that you are not sending your computer software business proposal to a biotech venture fund. The point is that if the VC has invested in a company that is similar in some ways to your company, it would be good to compare your company with that past VC investment.
You can submit your business proposal to the VC via e-mail. Most are receptive to this form of submission, and some of the high-tech VC funds prefer this form of submittal. Unfortunately, there are quite a few venture capitalists that do not read the e-mail that arrives at the e-mail address listed on their Web site. So be sure that you are getting your business proposal to the VC if you submit it via e-mail. A call to the venture capital fund will put you in touch with a receptionist. Usually the receptionist can tell you if the venture capitalist will accept a business proposal by e-mail. In addition, the receptionist can name some other people inside the firm who may be available to read your proposal.