Assessing VC Interest

Every founder I’ve worked with has come to me at some point post-investment to tell me they have strong ‘inbound VC interest’ in their company.  However the variation of how they describe the interest is so incredibly wide that its clear to me that assessing VC interest continues to be a struggle for all founders.

Its super important, because in almost each case, the founder is tempted to try to leverage the VC interest into starting a fundraising round prematurely.

It is a natural line of thinking.  ‘I was thinking of raising a $1oM Series B in six months, but if this VC wants to fund me maybe I should just start now?’.

Played right, it certainly can work.  Played wrong, and you’re out in the market too early, your leverage goes away quickly and you’re in a tough spot.

So when a founder comes to me with ‘inbound VC interest’ I just ask a few simple questions to sniff it out:

Question:  Are you talking with a General Partner or a more junior level resource?
What I want to hear: General Partner or a Partner/Director with a track record of leading investments at the firm.
Why: I’m not going to debate whether Associates are OK or not.  Its just a fact the more senior the better.  If your contact isn’t senior, you can’t take the inbound interest seriously.

Question: How many touch points (phone/in-person) have you had?
What I want to hear: 
3+
Why: 
1 meeting isn’t inbound interest.  2 might be headed there.  3 and they are clearly thinking about you a lot.

Question: Has the person (remember, ideally GP) come to see you in person?
What I want to hear: Absolutely.
Why: 
This is ESPECIALLY crucial for founders outside the valley.  If you’ve got a GP coming to see you in person, this is a very good sign.  Whether or not they are from the coasts or not.  If they haven’t come to see you or tell you to ‘stop by and say hi’ next time you’re in the area, they just aren’t taking it that seriously at the moment.

Question: Have they seen your numbers?
What I want to hear: Yes
Why: 
This is the final one because its the most important and where I see founders mis-assess VC interest the most.  Founders within our own portfolio have waited way too long to share KPIs.  They truly think that the VC wants to preempt a raise only to share details too late and find out quickly that churn is too high, or MoM growth is just a little to slow, or LTV/CAC isn’t what they expected.  You get the idea.  They may still have interest but not quite at a valuation you’d expect for a preemptive deal.  Get the info out there.  Don’t just speak to it.  Show them the data.  It’ll save you time.

So distilling it all together, if you’ve had several conversations with a GP/Senior VC, they’ve visited you, and they’re happy with your metrics….you’ve got legit VC interest!

If any of those fall apart you should tread carefully and not overplay your hand.

get in touch: Arthur Ventures; patrick@arthurventures.com

2 Comments

  1. Great post. I would only add that a Founder needs to be careful about “showing the data” to investors that may primarily be looking to gather info to help their existing portfolio or evaluate other prospective investments. I realize there are always risks, but asking an inbound investor about potential conflicts in his/her portfolio or other prospective investments is usually warranted.

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