Some counterintuitive advice from a VC (Oversubscribed Weekly #16)February 26, 2019
Max here. Today we have a Q&A with Jackson Jhin from Chicago Ventures, who has some counterintuitive advice about VC relationship building.
But first, a huge thank you to those of you who came out for the first-ever Oversubscribed Dinner in NYC. We had a great time swapping advice and war stories with y’all.
Everyone except me listening intensely to Ajay Kishore of Stareable (I was taking the photo).
And now, on to our Q&A with Jackson.
Oversubscribed: What’s a common piece of fundraising advice you actually think is wrong?
There is a common belief that it is best to build up a relationship with a VC overtime before you are ready to fundraise. The idea is that if you schedule periodic coffees to build rapport, the investor can see your progress and “invest in lines not dots”.
However, I have a somewhat unusual opinion that it is best to not meet the VC before your pitch. The best fundraises I’ve seen were when the VC hadn’t seen the deck before, they got excited about this novel idea, and there was a tight process that built natural competition. This plays to the natural human psychology around getting excited in business (arbitrage opportunity, industry gold rush, novel product) as well as the fear of missing out (which occurs when there are multiple suitors).
There are a couple reasons why I think this is the most optimal strategy:
- VC’s are busy so constant coffees are hard (unless you are a notable/proven entrepreneur, or already friends with them).
- Running a tight, competitive process adds a natural urgency, which prioritizes your meetings and emails over the other wave of emails they have to deal with that week. By the way, don’t create artificial urgency, which is very obvious.
- VC’s say “no” more than “yes” in a 20:1 ratio, so their brains are more wired to see the risks than the upside. To a risk-minded brain, the FOMO on a competitive deal can be more effective than selling the ROI upside (which is important, but very hard).
- Not all VC’s are objective/independent thinkers, so sometimes it helps to verify that your deal is indeed hot, and other people think so too.
- This advice is mostly for funding rounds where you have traction showing that the business is working. For pre-seed or angel meetings, it is better to build a relationship over time because it’s hard to build FOMO if there is no proof that your idea is valid.
- This strategy is hard to do in Series B+ rounds. For late stage rounds, the VC’s are often hunting down the best portfolio companies of early investors, so it is sometimes inevitable that your story/traction leaks. One of my favorite articles on fundraising is Front Series B Deck by Mathilde, the CEO of Front, where she talks about how she was able to raise $66M and receive 12 term sheets in 5 days. She took the strategy of building relationships over time and meeting with each investor every 3 to 6 months. That said, she also emphasizes how important it is to not give away too much in those short meetings.
- I’m a VC in Chicago. I primarily am basing these learnings off of helping our Chicago and Midwest companies pitch VC’s in the valley. It might be the case that this strategy works better for companies who are visiting from out of town.
A big thanks to Jackson for his incredibly insightful answer here. We’ll talk to you next week!
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