Is it wisest to approach one investor at a time?

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JASON LEMKIN

No.

First, it takes too long.

If a VC doesn’t know you, and you aren’t a “super hot” start-up, even if you do get a term sheet — it may take months. Yes, term sheets get done in one day. I haven’t done that, but I’ve done “handshake” deals in one day in maybe 50% of my investments (i.e, if X, Y and Z are true … then I’m in).

But … in those cases … i’ve usually had a chance to at least partially get to know the company and founders beforehand. At least to observe and track them.

If I don’t have any context ahead of time, I may need weeks or yes even months to learn enough. Not literally months to do the “homework” … that doesn’t take long … but sometimes months to see enough progress for the investment to make sense to me, to connect enough dots.

Second, multiple offers are better.

Even if you don’t get a better price with >1 offer, you at least will dramatically simplify the process. VCs don’t screw around on the small stuff if you have another offer already. “I already have an offer at $6m pre.” OK, well that simplifies things.

But … you can only do so much. Meeting with > 5–10 VCs will take an enormous amount of time. You may have no choice. And not only will it take a ton of time, but VCs will “smell” that it’s taking a lot of effort.

And so some investors will get turned off if they see you are talking to everyone. Or have been “on the road” raising for a while.

And — there are probably 1–2 investors you’d prefer over the others.

So my suggestion is:

  • try to build a relationship with your Top 2 Choices for investors as early as you can, if possible
  • keep them updated
  • then, when you are ready to raise capital … let them know early

If your top choice is interested in you, you’ve kept them updated, and then you email them when you are ready to raise … sometimes you really can get an offer that day. It’s worked with/on me.

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Published on June 25, 2016
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