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Fundraising Strategies Every Investor Should Know

What You’ll Learn:

  • Think you nailed your first impression with investors? Now it’s time to talk more in-depth about your fund.
  • What do investors really want to hear from general partners (GPs)? And most importantly, how transparent should you be?
  • How do you form a valuable GP / limited partner (LP) relationship? Learn the do’s and dont’s.

Women in VC — the world’s largest global community for women in venture capital led by Sutian Dong and Jessica Pelz-Zatulove — conducted an illuminating panel discussion about fundraising strategies. The discussion focused on how managers of venture funds and investors can determine if they’re a good fit for each other and the type of information that really impresses investors. Watch the webinar recording here.

The panelists were Jamie Rhode, Vice President at Verdis Investment Management; Lisa Cawley, Fund Investor with Knollwood Investment Advisory; and Caroline Hale, Senior Director of Venture Platform with First Republic Bank.

We divided this discussion into two parts:

  1. How to Create Immediate GP/LP Connections
  2. What Investors Really Want to Hear From VCs
  3.  

Part 1: How to Create Immediate GP/LP Connections

Understand the Investor’s Goal: Do your research because approaches can be very different.

Understanding the goal and overall process of the investor is important for any GP of a venture fund. For example, Verdis Investment Management is a family office, which is a privately held company that handles wealth management for a single family. While the family has a philanthropic arm, the investment arm has one straightforward goal: Compound the family’s capital for another 200-plus years.

In 2015, Verdis shifted its portfolio strategy. The family office uses data to inform its investment decisions. In contrast, Knollwood Investment Advisory, also a family office, emphasizes building relationships with fund managers over time.

Researching the investor ahead of the introductory call — and knowing distinctions like this — is critical to making an effective pitch and determining if the fit is right. That said, family offices tend to keep their information private for security reasons, so fund managers need to be flexible during the first meeting.

The First Call: Be conversational and don’t assume that only one decision-maker matters.

At the beginning of the first introductory call, a VC should take the first 10 minutes to interview the investor and then tailor the meeting to the investor’s needs. Do they have a large organization or just two or three people? Are they experienced and knowledgeable in the VC space, or does the VC need to explain the difference between seed stage, series A and series B?

“Please make your presentation conversational,” Rhode says. “Don’t spend 30 minutes just going through your deck. Don’t spend 30 minutes on your background. Get down to business and show your edge and why you are worth their time.”

Fundraising is taxing for people on both sides, so everyone should manage their time judiciously. A venture capitalist (VC) doesn’t want to spend precious time with an investor who is not dedicated to their asset class or will not continue to allocate in the future, even if the VC is looking for a short-term solution now.

“The first conversation should be a two-way street where you are getting to know the [investor] as much as they’re getting to know you,” Cawley says. “You want to know if you are a fit and should be spending more time with this person. It really is about playing the long game.” On that initial call, the LP is taking the long view — for a VC who is both a portfolio fit and a partner fit.

Too often, VCs focus on just getting to know the perceived decision-maker among the investor’s team. Teams are structured differently, especially within a family office, so getting to know the members can be extremely beneficial over the long run. Each team member might have network relationships that can help the VC make important connections. Before you finish the call, ask the investors if they think you are a good fit and what preferred next steps they suggest.

Fundraising Decks: Provide the crucial details but use your meeting time to convey your passion.

Fundraising decks, which are meant to convey the most pertinent information about a venture fund, sometimes focus on splashy headlines rather than communicating effectively. Some decks lack basic information like the number of deals and the amount of capital deployed. This will only frustrate the investors.

The panelists suggest the VC prepare both a pre-call deck with the most compelling highlights and a more extensive deck for the call itself, anticipating any questions that might need to be illustrated in the material. That said, the first call should be about connection rather than the deck.

“Use the time to convey your passions, your interest, your competency, and really talk about your thesis,” Rhode says. “That is the stuff that you can communicate more passively.”

“The key things that we look for are portfolio construction, sourcing and networks. If you pass all three of those, then you know we are definitely interested in taking that next step with you but that next step is really different based on bandwidth and timing. If you are a fit for the portfolio, our next step is going to ask you for specific materials and data,” she suggests.

How to Impress: Tell a story about the value-add you provide.

A deck, no matter how well prepared, isn’t going to wow a seasoned investor. What does move them may be surprising: stories. Rhode was impressed by a fund manager who told a memorable story of how he got into the deal and why they got into the deal. “If you can give me a really good example of how you fought your way into a deal, and you didn’t get the allocation you wanted, but you wanted this founder, you can make yourself stand out,” she says.

This is especially important with emerging managers, who may only have an angel track record and little data by which to intrigue investors. “A story like that usually gives me an indication about your passion, your access and network,” Rhode continues. “Why are you different than the 300 other GPs that are in my inbox?”

For Cawley, the “wow” factor in recent meetings comes from managers who explain how they helped their portfolio navigate through COVID, such as helping their companies hire key people. “I love when a venture fund manager can focus on how they work with their portfolio companies, helping them build a vision,” she says. “When people say the buzzword ‘added value,’ I want to know how they’re actually helping.”

Ways to Find Emerging Managers

Investors use a diverse array of sources to identify emerging fund managers.

  • SEC website
  • Twitter
  • LinkedIn, especially articles posted by emerging managers
  • PitchBook, a company that delivers data, research and technology covering private capital markets, including venture capital, private equity, and merger and acquisitions (M&A) transactions
  • Crunchbase, a platform for finding business information about private and public companies
  • Intros from attending virtual conferences or Zoom events
  • The Women in VC Slack group, which is a private platform for the members to engage on a daily basis across almost 100 channels

This concludes part one of First Republic’s two-part report on Fundraising Strategies Every Investor Should Know. Download the full report to read part two of this series, which covers follow-up, due diligence and learning what “no” can actually mean.

The content of this publication is for information purposes only and should not be considered as a commitment to lend or as legal, financial, accounting or tax advice. First Republic Bank makes no representations, warranties, or other guarantees of any kind as to the accuracy, completeness or timeliness of the information provided in this publication. You should consult with your own professional advisors to fully understand and evaluate the information provided in this publication before making any decision that could affect the legal or financial health of your business.

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