Phil Morle 🖖🏻

Mar 4, 2022

If you don't know the answer to these 4 questions, you are unlikely to land a cheque from a VC

There are more than 40,000 venture funds listed in Pitchbook and only a few of them will invest in your company.

Even if you are nailing it, VC firms constrain investing around certain parameters and you need to understand what they are.

If you pitch to a firm without this fit, you are lost before you open your mouth.

Do this work before you need the money. Build relationships with investors so that you can get a feel for the nuance of their position.

#1: Do they invest in your kind of company?

VC firms have stated (and unstated) areas of focus they understand well and prefer to invest into.

  • Check the hard qualifiers first. What is their mandate with LPs (their investors)?

  • Understand comfort levels around different kinds of category. e.g. certain market problems, certain technologies, hardware/software

  • Individual investors will have special areas of interest that other people in a firm care less about. e.g. In Main Sequence, one of the areas I am excited about is new ways of making food and materials that are good for the planet. If you pitch a semiconductor company to me, a lot of it will go over my head. You need to get to Mike Nicholls in our firm.

#2: Do they invest in your stage of company?

Firms are designed around specific maturity stages for their investments.

  • At what stage do they prefer to make the first investment? Pre-seed ⇢ Seed ⇢ Series A ⇢ Series B ⇢ Series C etc

  • What do each of these stages mean to them? What metrics do they like to see to qualify for each stage label?

  • What is their follow-on strategy? Do they prefer to continue investing up to a certain stage? Do they like to main their % holding?

#3: Do they tend to 'lead' or 'follow'?  

An investor that 'leads' a round will negotiate the valuation and lead the discussion around terms on behalf of a larger syndicate.

Investors often decide to follow if they are interested but don't have strong enough knowledge or conviction to take the lead position. You are likely to collect 9 of these for every 1 that is open to leading.

You will need a lead to close your round and having one will build confidence for the rest of the syndicate. Have a VIP list of individual investors in individual firms that are open to leading.

#4: How is a decision made? 

All firms decide differently.

  • Some firms have layers of analysts and associates writing memos that one partner makes a cold decision around at the end of the chain. Here you need to make sure the written information you provide is compelling and can survive documentation 'Chinese Whispers'.

  • Some firms have a high-touch process with entire teams needing to meet you to decide. Here you need to have a consistent story and be ready to pull a group back from diversions.

  • And everything in between.

Know the process you are in.

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Ideally, you know all this information before the topic of investing comes up. If you do find yourself on an investment call without knowing, ask the questions first then frame your pitch around the answers you get.

If you immediately disqualify the opportunity, explain that is your reading but ask if it is worth a quick brief so that they can refer you to some other investors with a better fit.

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Every day, I write about what I am learning in deep tech venture building. Currently I am focusing on a primer series for scientists and people new to the space to get a quick understanding of the basics.

I hope you will follow me if this is valuable to you ⇢ @philmorle

Phil Morle 🖖🏻

Partner at Main Sequence - a venture capital firm purpose built to create global companies from scientific ideas with the inventors who imagine them.

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