Your VC investors can provide a ton of great help. But they also give you a lot of mediocre help, and mediocre advice, and since they are your boss, you do need to smile and nod. One of the things they do that looks super helpful, but really isn’t, is when they introduce you to their list of friend VCs for your next round.
You’d think these intros would be great. The names on the list are usually great. But, actually, these leads are terrible. Crap leads. In fact, in all my companies, founder and executive, with all the VCs and fundraising rounds, I’ve never had any success with any of these intros from my existing VCs to a new one, at least not for a lead investor. Not once. Ever. Lots of meetings. But they never really work out.
Why? Because they aren’t well qualified leads:
- These intro’d VCs you are pitching know you are being pimped out by your existing VC. Why is this bad? Because
- It’s impossible to create a sense of urgency.
- And since you have no preexisting relationships here, the VC friends of your VC needs to get to know you from scratch
- And they are wondering if you are really that hot, or in fact, perhaps desperate since you didn’t get to them on your own already (Groucho Marx syndrome + signaling issues)
- So the VCs who are friends of your VC will drag things out and burn a lot of your time
- And probably give you a crappy valuation, and collude/by colluding with the VC already who invested in you
- And you’ll probably end up … begging.
It. Just. Doesn’t. Work.
I know people will point out examples to the contrary. And I bet many of them will be VCs. And obviously, if you are hottest thing since sliced bread … well anything works in that case. Just do an auction.
But for mere mortal SaaS companies — what do you do?
Two things work great:
First, qualified intros and references from your partners, and from successful start-ups later stage than you, to VCs work like a charm for the Series B. Same way a reference from a successful entrepreneur worked like a charm for the Series A. Unlike your own VC, partners and peers can create an instant sense of excitement for you with potential investors.
Second, as folks like Mark Suster have repeatedly pointed out, you need to cultivate your own medium- to long-term relationships with a pool of VCs. On your own. Don’t go askin’ for money when you need it. Subtly ask for it before you need it. You can only do this with your own relationships.
Third, if you haven’t already developed next-round VC relationships — ask your VCs for intros to other VCs just a months right after they invest. You want to get to know new potential investors when you don’t need them, not when you do. Your current VCs obviously are big fans right after they themselves have invested — so if you need more intros, get them then. Low stress, low pressure, during the warm glow of the investment honeymoon. Not 5 months before your zero-cash date.
You’ll probably have to beg for seed money. You may have to go begging for Series A. But if you’ve got some traction after that, take the time, do it right. And whatever you do .. don’t go begging.