Do Your Own (Fundraising) Research
One of the most important steps in preparing for an effective fundraising process is building a fully-researched pipeline of target investors. Identifying and researching 80-100 target investors is tedious and time-consuming, but it’s essential for successful fundraising.
And it’s not something you can outsource.
Anyone you speak with about high-velocity fundraising will emphasize the importance of researching target investors. In our quarterly fundraising bootcamps, every single speaker — investor and founder alike — talks about it. We emphasize and re-emphasize how crucial this is to effective fundraising. Yet there are always founders who want an easy button.
Inevitably, our post-program surveys include at least one founder who submits some version of the following feedback:
I would like your help in identifying proactively who the right subsequent rounds' investors should be. I don’t have the time to list the investors that I would like to be connected to like Chris asks for. VCs know what firms are good for me and my industry, so I expect to get help in finding the right investors. The reality is I don’t have time to recreate that list they’ve done maybe times before.
The thing is…founders aren’t wrong to think this.
From a founder’s perspective, it seems reasonable to presume that their investors should know who the best downstream investors for them are. (Especially if their investor is a loud-mouthed VC who won’t get off his soapbox about how important it is to build relationships with Silicon Valley investors.)
Unfortunately, it doesn’t work that way.
Let’s Start with the Numbers
According to Crunchbase, there are currently 1,430 active Seed and Series A VCs in Silicon Valley.
According to LinkedIn, there are more than 4,000 individuals at VC firms in the San Francisco Bay Area with the title “Partner”. I’m personally connected to almost 200 of those individuals – which is both a lot but also barely scratches the surface.
Here’s the reality:
In general, most investors only know one or two people at a given firm
More often than not, the VCs they do know at other firms are the partners who focus on the same area of investment that they do (in my case, more than 50% of the partners I know personally at Silicon Valley VCs focus on enterprise software)
In the vast majority of cases, two VCs who know each other personally have never actually done a deal together
What this means is that if one of your VCs happens to be an expert in your exact space, then they can potentially list off dozens of investors that would be a perfect fit for you. Unfortunately, that’s almost never the case.
Take me for example: my background is in enterprise data and business intelligence software. Out of more than 110 portfolio companies across Canada, Panache Ventures has never invested in a single database or business intelligence company 😭😭😭.
Don’t look at me…
This reality has two important implications for founders:
While your investors may know a lot about your business, they likely don’t have the expertise to identify the firms that could be the best fit for you. In fact, they likely have never heard of many of the top VCs in your area.
While your investors may have developed relationships with 1 or 2 partners at a firm you want to target, they likely don’t know the specific partner you want to pitch. Moreover, they almost certainly have no idea who the best partner is for you at any given firm.
Going back to the example email, our hard-working founder hypothesizes:
VCs know what firms are good for me and my industry, so I expect to get help in finding the right investors. Reality is I don’t have time to recreate that list they’ve done maybe times before.
Unfortunately, this perfectly reasonable expectation is, in fact, completely unrealistic.
Unless you happen to be building enterprise data or business intelligence software, I don’t know which firms are a good fit for you nor do I know the names of specific partners who would be. I might be able to list off a few good guesses, but that’s about it.
Moreover, I promise you that I have never, ever created a list of target investors for anyone other than myself (and that list is now 10 years old!).
If You Can’t Do My Research, What Good are You?
As your investor, there are three things I can do to help you kick off your fundraise:
1. Fill in the Blanks
While I might not know all of the firms investing in your area, there are likely firms that I have heard of that aren’t on your list. Often, I’m able to supplement a founder’s target list with lesser-known firms or generalist firms that are active in a given area but might not be known to them. If you have a strong, relevant investor syndicate, you could potentially “crowdsource” 30-50% of the names of target firms from your existing investors.
2. Focusing your List
Almost every time a founder sends me their target list, I immediately see the names of investors that aren’t a fit. Funds that are too small (or too large), ones that aren’t actively writing checks, or ones that I strongly feel that the founder should avoid.
3. Introduce You to Someone at a Fund
While I rarely know every single partner at a fund, I can usually help you get to someone at a fund through my personal connections. For example, my partners and I recently helped an AI-driven drug discovery company raise a Seed round by sending their (well-written) request-for-introduction emails to our contacts at a variety of Silicon Valley firms with a simple note:
I think this might be a fit for you guys – would you mind sharing with your partner X to see if he/she would like the introduction?
It’s worth noting that there is one important exception to everything I just wrote: if you raise money from a VC firm that is very narrowly focused on your industry, they likely have a more extensive (and more relevant) network of downstream investors. But for most founders — particularly at the Pre-Seed and Seed stage — that isn’t the case.
At the end of the day, fundraising takes a lot of work. And successful fundraising is built on the back of considerable planning and preparation. Identifying and researching your target investors is one of the most important parts of that and, unfortunately, it’s not something I — or any VC — can do for you.