How to Capture Interest and Capital from VC Firms

This article was originally published in April 2021. It is updated and re-released in September 2024 to reflect differences in the post-pandemic startup and investments environment.

Often, founders who need to raise funds for the first time will try to get a meeting with anyone and everyone that has invested in a business before. This includes angels, family friends, and of course, venture capital (VC) firms. While this approach shows a certain level of tenacity and commitment to your business, there is a more efficient way to go about fundraising. Not every outfit that invests is right for your business. Venture capital firms, in particular, vary in terms of their interests and stage of investing.    

The Secret to Finding the Right VC Fit

BIP Ventures is a multi-stage, multi-sector investment firm. For many of our founders, we are their first source of institutional capital. We take a longitudinal approach to investing, often putting in a small initial amount of capital and following-on with portfolio companies that prove their growth potential. Our team also conducts rigorous diligence, not only to determine whether the business fits with our thesis, but also to determine whether the founder and leadership team are open to a post-capital relationship. Not all VC firms seek to work closely with founders, but at BIP Ventures, we are actively founder-aligned. Our investment leads and Performance Engineering team members align with our portfolio companies to help founders identify gaps, capture resources, and streamline progress. These fundamental building blocks equip them to identify exceptional market opportunities and accelerate their business — even when that work is uncomfortable or challenging.

While these commitments and efforts are ways we act as stewards of our founders dreams, but every VC has its own way of operating. VC firms tend to specialize in specific market verticals, such as Healthcare IT, SaaS, Fintech, and so on. If the startup doesn't play in a category the firm focuses on, it's unlikely to draw much interest. Likewise, if a VC firm tends to make only later-stage investments, such as in companies already generating $10 million in annual revenue or more, it probably won't invest in early rounds where the company has yet to hit their revenue targets. It's not hard for a startup to determine whether a VC firm is likely to be a fit by reading its website, funding sites like Crunchbase, and even news releases.

Without a thoughtful approach to finding a capital partner, founders are setting in motion a plan to not only waste time, but also reduce their chances of getting funded.

Identify Potential VC Partners‍

Another great way for founders to identify potential VC partners is by looking at other startups in their market to determine which ones have recently received funding and from whom. They want to identify those VC firms that are making investments in companies that look the most like theirs in terms of industry, maturity, size, and even geography. While there is certainly a web search component to this, talking with other startups in the founder's ecosystem can also divulge more about a VC firm in terms of their management style, level of involvement with their portfolio companies, and success rates of their investments. This is yet another reason why it's important to build a network with other founders and entrepreneurs going through similar stages of growth. Conferences like Venture Atlanta offer great opportunities to build and engage with a high-potential network.

After a list of potential VC firms has been built, take the extra step to determine who in the firm is the investment lead within the vertical of interest and learn what you can about them — their personality, previous investments, and background.    

Make The Connection‍

Once founders identify the VC firms they most want to meet with, the question becomes "how do I make a connection?"    

"Warm intros," the way most connections are made, are still the best way to get a VC's attention. This means being personally introduced or referred by someone else who knows the firm. While such warm intros remain the most direct path, they are admittedly the outcome of founders who already have connections within the appropriate networks. There are many high-potential founders building great businesses across the country that do not yet have such an advantage.    

For those founders, there are still other ways to capture VC attention. The simplest are to reach out via email or LinkedIn messaging, or to visit a firm's website, which often has a page for applying to be considered for investment. (For example: see ours here.) Conversely, good VC firms receive dozens, if not hundreds, of submissions like these each week. This is why finding ways to create buzz is also paramount, especially for early-stage companies. Presenting at investor conferences and pitch competitions are good methods for this, as the audience is made up of exactly who founders are trying to reach. Also, founders should explore working on their startup inside an accelerator or incubator as the mentoring, networking, and exposure can be highly beneficial. The trend of VCs forming accelerators within their fund has gained momentum over the past few years, as they seek to increase early-stage investment and value-added support to their more traditional offerings.

‍What VC Firms Want    

What VC firms look for in an investment varies by a company's maturity. More mature businesses are expected to have things like product and go-to-market strategy nailed down, while earlier-stage businesses have a different set of expectations. For these companies, investors want to see real potential in their offering. What is meant by real potential? A company's solution needs to uniquely address a significant problem that the market knows it has and wants to solve. I've written before about why simply having a good idea isn't always enough. It's surprising how many failed startups were born from a good idea but without a ready and willing market to support them. It's also important for even early-stage companies to have some initial market traction to confirm their solution is salable.

Finally, VC firms also assess the founder to ensure that he or she is someone they believe can scale a business and with whom they can work. While there are a number of intrinsic traits they look for, most of all they want someone with the ability to take charge of a team and who also possesses a willingness to learn from those around them. This is why founders should gravitate toward an investor that focuses where their business operates. With such experience at hand, the company's industry knowledge is enhanced and established networks can be leveraged, increasing the likelihood of success for both the investor and the investment.

‍Be Prepared For The Conversation‍

After you get a meeting (congratulations, BTW), the best advice is to go in prepared. Founders should know their business's KPIs and be ready to talk in-depth about their solution and market. It's also acceptable to ask questions beforehand in order to have a better idea of what the VC wants to know and exactly who will attend the meeting. We've offered tips for building successful pitch decks, in some cases with the help of AI (find that guidance here.) While it's important to do your homework and be prepared, it's also okay to not have all the answers. In fact, that's better than getting into trouble by not being honest if you have a limited extent of knowledge. Too many founders try to "sell" their business to VC firms instead of giving an accurate picture of what is going well and what current obstacles the company faces.

Any potential partnership is a two-way street. Remember that just as a VC firm is evaluating the startup, founders should also be assessing the VC firm. If you are fortunate enough to have more than one suitor, evaluate how well the firm can partner with you to help you grow your business, not just the terms of the term sheet.    

‍This article was originally published in Forbes and reprinted with permission.