Some thoughts on:
Why startup investors take a LONG time to decide (and how to shorten that cycle)?
Why startup investors take a LONG time to decide (and how to shorten that cycle)?
1) Yesterday, I was talking with one of my founders about his conversation with a potential investor. He's had a couple of meetings with the firm and one of the GPs wants to meet again. My founder was asking what they should talk about since they've already covered everything..
2) First, why do investors take a while to decide? Well...it depends, but the answer is that not all investors do -- it depends on WHO it is and how their decision making process works. And it's important to understand that background first.
3) For example, most angel investors can decide on an investment in 1-2 mtgs. Why? Because an angel's money usually is only shared by maybe a partner/spouse or maybe family (with a parent). So, it can be a fast decision making process.
4) Sometimes angels take a while despite this, because an angel may have many things going on. Including a busy job (or starting a company!). Or family matters. Or many other investments to evaluate. So, what's important here is to make yourself a top priority.
5) But the decision making process in itself is not the time-consuming part. So understanding where the bottlenecks are and dealing with them accordingly is what is important to identify.
6) And then, you could be pitching investors who are stewards of other people's money. Like VC funds. If someone is managing money for other ppl, then the process is going to be more involved almost by definition.
7) There are probably many processes in place to make sure there is proper diligence on every decision. This could mean having a first mtg with one person at a firm. And then having a second mtg with a subset of decision makers. And then maybe an all-partner mtg of sorts.
8) There could be MANY mtgs with funds, and the number of mtgs depends a lot on the size of the fund (number of ppl at the org), etc. There's no way to shortcut this. The quickest way is to try to get all of these mtgs done as quickly as possible. But a process is a process.
9) On top of that, all of these funds have many companies they are looking at. So in addition to the process being long, you also have to try to prioritize your company over all other deals that a person could be looking at.
10) Lastly, with organizations, you also need to understand risk profiles. Who is incentivized to take risk? An associate or a principal may or may not have enough carry (or any?) to take risk. But the downside of shepherding a "bad deal" is losing a job.
11) In contrast, the decision maker usually has lots of upside incentive to take risk, because this person is the one who reaps the benefits if the investment does well.
12) This is obvious but important. Because I hear ppl go around saying things like, "Oh, don't pitch the associate. Try to pitch the managing partner." And while there is some truth here, in this current VC landscape, that may or may not be a good idea.
13) Eg there are a lot of new funds where there's an MD focusing time on fundraising their fund. And it's the principal who is doing pretty much all of the decision making (or strong advocating). In this case, it would be MUCH better to pitch the principal.
14) That principal may have a lot more carry than other principals, because frankly speaking, that person likely isn't making a lot of cash so the upside is in carry. Also, the MD is probably all over the place and won't prioritize deals over fundraising.
15) In other cases, at a big fund, maybe the principal is making a good salary but has limited carry and there are more ppl and more processes. So, this is why I say it's case by case, and you have to follow the risk/reward.
16) This also applies to funds! Often, a new microfund mgr calls me up asking how to close a FoF. And at fund-of-funds, same thing. Who is incentivized to take risk? If you're the head of a family office, then you may like to take the risk, because you get the reward.
17) But if you are pitching someone who works for an organization and is not incentivized (much) by upside, there's less risk appetite. So just understanding that dynamic should affect strategy.
18) It's not say that you can't win over someone who isn't a decision maker (either for startups or funds), and there are plenty of great ppl who work for funds (both at FoF and at VCs). But it means your tactics as the pitcher need to change.
19) Vast generalization - if you're pitching someone who is a decision maker, focusing on crazy upside is important. If you are pitching someone who is not -- you want to make this person look good / convey you know what you're doing. Your company is what it is but diff msging.
20) Finally, running a good fundraising process is ultimately how you close ppl quickly. In all cases, you need be everyone's top priority and the only way to do that is to have lots of mtgs and have momentum on the raise. Scarcity of your round or fund is what drives ppl.
21) Final final thought - when you think about it, even if an investor wants to invest, there is NEVER incentive to do so now if the opp is avail tmrw. ALWAYS better to wait for more info unless there's a *chance* the opp may be gone. That's why FOMO is impt to motivate investors
