When a company initiates a fundraising process or contemplates a sale, it can be difficult to identify appropriate firms to target, structure diligence items internally, and adequately prepare for the inevitable investor Q&A.
After providing a general overview on Venture Capital and Private Equity in Part 1 of this series, we turn our attention to VC/PE investor targeting. Our ABCs of VC/PE series will be continued on a quarterly basis throughout 2020.
Structured Outreach
Investor outreach is a time-consuming job for many leaders. A good rule of thumb, especially for newer teams building their networks for the first time, is that in order to arrange five meetings, you should plan to contact at least 100 investors.
Many VC/PE investors are more receptive to referrals from entrepreneurs and other investors within their network, but some funds are also willing to consider meeting requests via cold outreach. Therefore, it is important to map out your outreach approach with the following considerations:
- Who will be performing the outreach? While VC/PE firms appreciate hearing from CEOs, other team members and partners (IR and financial advisory firms) may be able to help manage communication and assist with subsequent follow-ups.
- Which funds are you targeting? We will delve into this subject next, but it is critical to identify the right firms. You do not want to waste time reaching out to a $50M fund that makes seed investments about a $50M growth equity financing.
- What are you planning to say in your outreach to new and existing contacts? VC funds receive many cold emails, so even a differentiated subject line can make a difference. Additionally, you should have a specific ask in terms of the amount you are raising.
- Do you have relevant materials ready for investors? Some investors will ask to see a deck prior to scheduling a meeting (and will not want to execute an NDA so early in the process). We recommend a non-confidential teaser deck that can be shared in these situations.
- How are you tracking your outreach? It is a best practice to track all interactions through a spreadsheet or CRM to ensure you have followed up with each fund and that you know which funds have already reviewed your deck.
- How are you going to ensure an ongoing dialogue? The VC/PE community is close knit. It is important not to burn any bridges and to maintain dialogue, even when you do not need to raise any money. This can be accomplished through conference outreach, email campaigns (e.g. a quarterly newsletter) and 1×1 emails with news you would like to share.
Once you have organized your outreach approach, the next step is to determine the funds you would like to target.
VC/PE Firm Targeting
In order to make the most of your internal resources and an investor’s time, we recommend building a target list. The goal is to start with a very large list or database and narrow it down to relevant firms. This way, you can ensure that you are reaching out to appropriate VC/PE firms, and you can better tailor your outreach strategy for warm introductions.
Below, we have outlined how to build a target list if you are not already working with an IR or financial services firm that can help you with investor targeting:
- Create a sortable spreadsheet with a list of VC/PE firms. You can find these firms through resources that require a subscription (such as Pitchbook and Crunchbase) and by vetting free online resources.
- Research companies within your sector (i.e. MedTech, HCIT, Biotech, Tools & Diagnostics) who have recently completed a financing at the stage you are considering. Since these financings are recent, it is a good idea to ensure that these VC/PE firms are on your list. The same subsector or therapeutic area can be helpful, especially if you can identify a theme or thesis within a portfolio, but it is also good to keep in mind that some firms prefer portfolio diversification in certain markets.
- Research investment criteria and relevant portfolio companies. If you cannot easily find or export investment criteria, you can search announcements on the types of investments that firms have made or led, and whether those began at earlier stages or later stages.
- Search for updates on each firm’s fundraising process. As you research announcements on a specific firm, is it clear that they have not raised a new fund since 2008 and appear to have deployed a lot of that funding already? If so, you can probably make a note (and later remove that fund from your final target list).
- Identify VC/PE executives relevant to your company. At each firm, which partner or principal would be great to add to your network? Team bios and “associated team” fields within the portfolio landing page will provide a lot of this information.
- Rank the information you have collected. Based on recent relevant investments, funding, and investment stages, you should be able to rank order the funds on a scale of 1 to 5 or 1 to 3.
- Annotate potential syndicate investors. Some firms are biased towards participating in financings (with a more limited contribution of capital) over leading them. These firms may become relevant in a subsequent phase of outreach.
Once you have built your target list, it is time to think about your company’s network.
Warm Introductions
Once the curated list is ready, we recommend reviewing fund and executive names to see if anyone within your company or on your board is connected to them, or if there is any prior CRM interaction history. Additionally, senior leaders on your team can use LinkedIn to see if they have a secondary connection in common. From there, outreach can be allocated internally. (Outreach to secondary connections should convey that you would like to familiarize them with your company and are hoping to build your network as you gear up for your next stage of financing, rather than being overly presumptuous.)
Another way to generate warm introductions is to build connections with other entrepreneurs. This approach may require additional research as you go back to your target list for relevant portfolio companies and review market intelligence on peers. In addition to cold outreach and alumni networks, it is easy to overlook industry events where you can request mentorship/advice on fundraising over coffee.
As you reach out to investors and schedule subsequent meetings, it will be critical to provide a compelling pitch deck and supporting diligence materials. In the next part of our series, we will explore these topics in more detail.
To learn more about Gilmartin and how we strategically partner with our clients, contact us today.
Caroline Paul, Principal
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