September 1, 2015
In a recent Kauffman Founders School video, Foundry Group managing director Brad Feld compared venture capitalists to Dungeons & Dragons characters – to make the point that they don’t all have the same skills and levels.
“I like to describe [venture capital firms] as Dungeons & Dragons characters,” he says. “It’s not a singular archetype where every VC is the same. Some are dwarves and some are orcs and some are wizards and some are mages.”
One common mistake Feld sees is the first-time entrepreneur wanting to raise $500,000 from a VC for an idea. “I encourage them not to spend a millisecond with venture capitalists because it’s the wrong audience for who they are,” he says.
Instead, he recommends heading to angel investors – those you know or can get introduced to – for that early capital. Even when you’re raising up to $1 million, angels and seed funds are the way to go. It’s only when we start talking millions (with an ‘s’) that venture capitalists need to get involved, Feld says.
On top of finding an investor who can offer the amount you’re looking for, they also have to be interested in your industry. “If you have a biotech company approaching me and my partners at Foundry Group, it’s a total waste of your time because we only invest in software Internet companies,” he says.
The investors with more narrow specialties – say, Bitcoin or Internet of things – can be particularly helpful because they know the lay of the land and can introduce you to the right people in your field.
Understand the Characters
In the end, Feld recommends putting the same kind of effort into targeting investors that you put into hiring employees. In other words, do your homework – read their blogs and tweets – to make sure they’re a good fit.
That will help avoid the fiascos that come from untargeted fundraising – which is the biggest mistake that entrepreneurs make when pitching to Jeff Clavier, managing partner of one of those aforementioned seed funds (SoftTech VC). “Asking questions like ‘Does SoftTech do seed investments?’ or ‘Are you interested in consumer Internet startups?’ is a sure way to show that you are out fundraising randomly. A classic from a couple of years ago: ‘Have you heard of Twitter?’; being @jeff that made me laugh,” Clavier told us.
This isn’t rocket science; I’m not even sure it’s advanced calculus. A simple Google search of the top 25 VC firms and a quick perusal of their websites will tell you the industries and stages they invest in. It just goes to show that, in some ways, the bar is pretty low.
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