Venture Capital | Part 3/7: Initial Meeting

What do we look for in People / On Founder Market Fit?

So, we’ve looked at your pitch deck and now we decide it’s worth meeting for an initial chat. This is a great sign! 95% of decks don’t make it this far (honestly, probably even more)

Why?

1. Because time is precious. VC firms have a lot more to do than look at decks and meet founders to invest in. We have to fundraise ourselves, do paperwork, due diligence, investor reports and more. And so, painfully little time goes into meeting new opportunities.
2. Because we see a lot of decks. We get a lot of inbound decks a week and once you’ve seen so many, things start to look boring. This is sad, I know, but it’s true. Things start looking all the same, and what you think is so so interesting, isn’t all that interesting anymore. (I’m sorry)
3. Because every company has a thesis. Most companies have an idea of what they want to invest in, be it people (diversity, women), be it industries (health, ed, etc.), be it geography (US, UK, emerging). This means a lot of opportunities we see don’t fit into our thesis and are an automatic rejection.

So that reinforces the fact that if you’ve made it this far, congratulations!! Now your next task is to smash this meeting out of the park.

Part 1: Introductions

Baymax saying hi

The first thing that happens is you enter, and say hi. Here is where your first impressions matter.

The goal is authenticity over perfection. People want to like you, they want to connect with you and get a sense of who you are. But they will only like you if they find a way in. While it’s tempting to be that overly-manicured well-dressed person, it’s not all that helpful. Be credible and personable, and that’s enough for a first impression.

To do

• Shake their hand
• Smile
• Display a genuine interest in their fund

Not to-do

• Boast
• Complain about your journey there
• Try to act like you’re super busy
• Put up a front in any way

We meet people really often. Just don’t try too hard. Authenticity is a high-value signal.

PS: This meeting can be remote or in person, but for simplicity, I am talking about the in-person version of this.

Part 2: You Present

Parks & Rec presentation gif

After this, we want you to present your idea and hear about it from your mouth. Remember, so far we have only read your deck and potentially made a lot of assumptions around it.

There are 2 parts to this —

1. What you present — This should be the pitch deck you sent to us, but updated to make it more detailed
2. What you say — Your well-rehearsed elevator pitch. This should be very easy to do by now.

Pointers for your elevator pitch

• Remember that this is a story. I recommend reading about how the greats tell stories and what they use to make an impact.
• Overpromise, but subtly. Don’t claim that you will change the world, but claim that you will change one person’s life.
• Start with a one-liner that explains everything. People have very low attention spans and I can assure you people will zone out while you are talking. Make it such that they will not miss out on the key thing
• Pepper the right amount of numbers, but not too much detail. Just a few high-impact numbers will be enough here, only ones that add impact.
• Don’t forget the why now. Why is this the perfect time to start this company?

Part 3: We Ask Questions

Iconic mean girls hand raising scene

After this, we ask questions about what you have said. Typically we want to know the following things:

Defensibility

How safe are we from competitors eating us up? In other words, how sustainable is our competitive advantage? Will a large fish release a feature in the next 6 months and will we stop existing?

You need to know which is your advantage and have an answer ready for how you will defend and grow it —

• Network effects/Traction/High switching cost?
• Brand?
• Economies of scale (Cost advantage)?
• Barriers of entry to competition?
• Technology/Patents/Know-how?
• Capital?
• Data?

Market Health

We want you to know the market well. These are numbers that will be asked of you to test credibility.

1. Size — The size of the global, regional and sub-markets is important to know. And you can be slightly wrong, but not wrong in factors.
2. Growth — How fast is it growing relative to other markets? Is this CAGR good or bad?
3. Drivers— What is making this market grow? What underlying metrics are pushing this — is it because of growth in related markets, is it consumer sentiments, is it capital allocation, is it growth of an economy, is it political agenda? Knowing these makes it clear that you will be able to spot risks if needed.
4. Trends — Apart from numbers, what is changing? How are people, markets, and companies changing?

Team

We want to know about you as well. Why are you doing this, what brought you here?

Individually, we want to know:

• Your journey so far — School, work, experiences that tie into where you are now
• Your goals going forward — What do you want to achieve through this business?

As a group, we want to know:

• How you work together — Ways of working, things that work, how you fill in each other's gaps

I’ll tell you a little secret — Everyone wants a great team, but they also want a great idea. It’s not one or the other.

Capital Runway

We want to know how much money you have, how much money you need and what you will use it for. This is just about having a plan and being aware of risks/contingencies.

Part 4: You Ask Questions

Dwight asking a Q

After this, we open the floor for you to ask things. Typically, you’d want to know:

1. What’s the process ahead with the VC firm? What lies ahead?
2. How the company fits into their thesis
3. Some specific things that were discussed in the conversation

Make sure you have questions to ask. This is important.

Part 5: We Say Bye

Mean girls gossip scene

After that, the meeting is largely over. A few mins more for rapport building, and then we leave.

The juicy part is what happens after, we discuss the opportunity and decide in around 10 minutes if we want more details or not.

We debrief on the following:

• Can we work with this team? Do they seem competent, do we trust them, do we like them?
• Does this market have good potential? Do we think it will be big in the next few years?
• Is this the idea that will win in this market, is this team uniquely positioned with an unfair advantage to make it big?

After this, we call you and set up more meetings to get enough conviction to move to the DD stage. More meetings will follow in the same way, and we will then develop certainty around the idea and team. Further meetings will involve more mathematical analyses and looking deeply into the dataroom (a place where the company tracks all key metrics over time, in a way that can be shared with investors)

This draft is the first of a 7-piece series focusing on the inside of the VC industry. It is told by a current VC associate, to help entrepreneurs lift the curtain. The goal is to learn to raise better by speaking the language and giving VCs what they look for. It will include —

1. Sourcing | Where good founders like to work, play, rest
2. Pitch Deck | What we look for in Ideas
3. Initial Meeting | What do we look for in People / On Founder Market Fit?
4. Due Diligence | How Heavy is the Past? — Data in VC, Financial analysis of VC firms
5. IC | The Art of Making Good Decisions
6. Deploy | Term sheets
7. Exit | Ways to do it