This is an anonymous post from an Elpha member.

Contacted by new investor at large VC firm. What do I do?

Bambi150·Jul 11, 2020

Posted in:Advice

Our startup was contacted by a new investor at a large VC firm - wishing to learn more about what we are building. This is the first time since our 2019 launch that we have received unsolicited outreach from an investor. We were rev generating starting in January and gaining hockey stick growth until Covid wiped out our market (music entertainment). Would love advice from all here on how to best respond. Thanks in advance!!

rachel·Jul 11, 2020

How do you feel about this large VC firm contacting you? From what you know of them, do you get the sense that they may be a good fit for your (startup's) current needs? Are you clear on what you are and would be looking for from them (or any investor)? I want to caveat my response with the fact that I don't have personal experience of fundraising or interacting with VC firms in this capacity; these are just some of the questions that came to mind when I read your post. These Hackernoon and Medium guides may also be good places to start:1) Hackernoon: https://hackernoon.com/seed-fundraising-how-to-handle-an-angel-investor-meeting-a1110cf2384b2) Medium: https://medium.com/techstars/a-step-by-step-guide-to-prepare-your-series-a-fundraising-f9d51ba27f6I had a quick look at the Advisors, Mentors & Board Members Directory and, amongst many others, @tstone, @nickykamra & Elpha's very own @jessicali and fellow CM @iynna may be able to provide more specific guidance. Hope this helps and wish you all the best with your startup! Awesome to hear that you were revenue generating and growing pre-covid - I hope that you find your feet again asap. :)

Tillie207·Jul 20, 2020

@rachelclifton Thank you very much for tagging me here :-)

jessicali·Jul 11, 2020

Hi! A few things I would note:1. A lot of times investors do mass outreach to startups through a PitchBook, Crunchbase, or AngelList pull they do for example, so I would make sure that this investor truly understands your business. You can ask something to that effect like "thanks for reaching out; what caught your eye about our business?"2. It is really important to be in fundraising mode or not in fundraising mode. A lot of companies make the mistake of half building/half fundraising, and what ends of happening is that neither goal (in company building or fundraising) is achieved. Fundraising is frankly a very difficult (you need to talk to dozens if not hundreds of investors and have your full deck/pitch/data room etc in top shape) and demoralizing process, even if it is essential sometimes, so it is important allocate a period of time specifically for that so that it does not distract and frankly does not ruin your mental health for the more important company building processes of your company.3. If you are not yet ready for taking the VC's money, and you talk to them and they notice you are too early, they may write you off as too early forever even if being "too early" is obviously a temporal state. A lot of startups do not speak with investors for that reason when they are too early.4. I am not one for mind games but I have noticed that when startups are hard to reach/not taking investor calls, the investor wants to speak with them more (like playing hard to get in the real world). So it is helpful to be hard to reach sometimes.5. If you are only speaking with 1 VC and they end up offering you a term sheet and your business is kind of in need of VC money, you will have very little bargaining power and VC money can be quite toxic (I have seen some crazy terms where VCs give very little and ask for a massive stake in your company). I would recommend getting to a place, if you are not already, of strength so you can have more VC conversations convert positively, are not desperate for cash, and can have more leverage in the discussions.6. Reference check the VC: speak to founders who have been REJECTED by the VC and founders in their portfolio who are NOT doing well. Every VC will be nice to their winners but how the VC treats their non-winners is much more revealing of their character and how they will be during hard times. In the initial outreach and if you are the "next hot thing" every VC will be super nice to you but when the phase passes, so many VCs won't give you the time of day (it is really awful, and I have seen it happen). It is important to really reference check VCs.Hope this helps! Feel free to ping me or respond here with other questions. I am a VC myself but personally empathize much, much more with founders and have seen all kinds of shenanigans in the VC world.

Bambi150·Jul 11, 2020

Thank you so much for taking the time - great points! Much appreciated.

rkel·Jul 13, 2020

Bookmarking this. Thank you!

DianePrince·Jul 11, 2020

This depends on so many factors and can't be answered without knowing more about your business. On a super high level, my rule is to take as little outside money as possible. It's distracting, makes you give up control, attached to obligations, etc. If you want to chat feel free to message me or I'm happy to answer here too.

Mirella185·Jul 11, 2020

Generate FOMO by saying you're heads-down and not taking investor meetings right now but you'd be happy to chat in a few months when you're coming up for air. This has worked perfectly for us.

hazelsavage·Jul 12, 2020

My company is in Music Tech, so my thought would be to look at whether this is a VC specific to your vertical. This article by Goldman Sachs has a lot of non-music specific VCs looking at our industry and just seeing $$: https://www.goldmansachs.com/insights/pages/infographics/music-streaming/Some are looking to move into the vertical, others are just fishing for info, others are looking for you to explain the music business to them, the latter take ages and offer little value to the startup. Feel free to DM me if you want my take on this particular VC, I may or may not know them, but happy to trade info if I do!

Bambi150·Jul 13, 2020

Thank you so much. Incredibly helpful!

hazelsavage·Jul 14, 2020

Happy to help!

Rosi·Jul 13, 2020

My first investor reached out to me. Just give your best pitch. If they reached out, they see potential and are wanting to connect. Take advantage of it!

Iynna·Jul 20, 2020

Hello @bambi150 ! I hope you are doing well.This is quite intriguing indeed. Not sure what you ended up doing but in case you have not acted upon yet - first thing is to check the portfolio of the fund. Do they have a conflicting investment and are just trying to understand how you are currently operating. Unfortunately a lot of VCs do that, it's quite unethical and sends lots of red flags. I'd simply reach back out and say thank you for the interest and you'd love to know what is it that piqued their interest and what they'd want to discuss specifically. The VC ecosystem is quite small (I know I can't believe I am writing it but it's true) so you want to remain professional and open to the dialogue while covering yourself :)