5 Unconventional Ways to Attract VCs
Fundraising and venture capital networking is notoriously challenging for new founders. Venture capitalists (VCs) can be the gatekeepers to a business succeeding or failing by providing much needed seed and growth capital.
The two common types of venture capital include traditional venture capital and corporate venture capital (CVC). CVC can be organized as an independent arm of a company that invests externally in synergistic opportunities. Traditional VCs are financially driven and know how to build and scale companies.
In Asia, CVC is on a rampage, representing 38 percent of all global CVC deals, up from 19 per cent in 2013. In just Q2 of 2019, there were 484 venture deals in Asia representing over $10 billion in funds allocated. These figures prove that VC is still one of the best options for founders to raise funds, despite drawbacks such as dilution and an overall slowdown in Asia VC in 2019.
Knowing how to approach VCs is critical in succeeding in both gaining their attention and closing an investment. Below are five tips I have personally seen on both sides of the table while working for a VC fund in Southeast Asia and as part of a startup founding team.
Offer Something for Free
One of the best cold emails I received from a startup was from the CEO directly. He reached out, introduced himself, and offered me a free one-year premium subscription to his app, which was already live on various app stores. It was only after I responded back to him and offered help did he mention an upcoming seed round.
This is an example of a perfect soft pitch, where value is given for free without asking for anything in return. This creates leverage for founders that can later be utilized when needing something from a VC. Free in this example could be event tickets, premium services, introductions, or even subject-matter knowledge that a founder might have.
Approach VCs With Overlapping Interests
Often, founders have a spray and pray approach to venture capitalists and will send mass email blasts to any VC contact they find. Not only is this ineffective, it causes a founder’s social equity to decrease with every outreach. A better approach is hyper-segmentation. Not only should founders find VCs that invest in their specific industry or type of technology, they should go a step deeper and find personal overlapping interests.
For example, you might notice on Twitter or on a VCs personal blog that they have an odd interest or are passionate about something that is completely unrelated to business. If you happen to share the same interest, this creates a much easier avenue to approach and spark natural conversation. Once a personal rapport is made, business conversations become easier.
Don’t Neglect Smaller Funds
In 2018, I experienced my first official fundraise as a partner of a venture fund looking to attract limited partners. During this process, despite us not being officially operational, we were still investing selectively in projects. For founders, this kind of situation would not be in any online database or publicly available.
The goal here is to network and stay close to new funds and their venture partners. Funds need good deal flow just as much as founders need capital. Founders can be a good source of leads for funds as well so there is an element of reciprocity that can be leveraged.
Look for Large Corporations
While in Japan, I met with the venture arm of a large corporation that was traditional in every sense of the word. They disliked risk and had a complicated bureaucratic way of doing business. Surprisingly, not only did this conglomerate have multiple VC funds, they had allocated over $30 million to a fund dedicated to the blockchain sector - arguably one of the riskiest industries to invest in.
The reasoning was simple. They were willing to take a gamble just in case the industry overcame growing pains and a host of other issues. This is more common than entrepreneurs realize. The benefit of going this route is typically more autonomy than a traditional VC fund. Take opportunities to network and get to know people at corporations that are expanding or have war chests large enough to take risks in venture deals.
Find Niche Incubators
Incubators and accelerators have various methods in place for screening and choosing which startups to back. For some startups, this can be the perfect jumping point to begin the fundraising journey. The interesting aspect of incubators is that some can be very niche and only support companies focused on one specific industry or type of business model.
New companies that have flexibility have the advantage as they can adapt to the asks of an incubator. For example, one large decentralize technology foundation is famous for backing startups that build off of their protocol. Even if a startup has not started developing their product, they can take their idea and commit to this foundation and their protocol in exchange for funds. Simple as that. This might not work for everyone, but it's an option often overlooked.