Pre-Pitch: 7 Ways to Build Relationships with VCs | Venture Capital

The Challenge of Investor Trust

A frequent misstep among founders involves assuming past success automatically translates to future investment. Demonstrating exceptional results to previous investors doesn't guarantee that a new group will share the same confidence. This incoming group lacks firsthand experience with your performance and currently has no established reason for trust.

Founders preparing for their next funding round often grapple with the question of how to cultivate trust with these new investors. How can they convince potential backers of their ability to deliver?

The Power of the "Pre-Pitch"

Successful fundraising, in our observation, is strongly correlated with a founder’s ability to forge strong relationships. A key component of this is what we term the “pre-pitch.”

This initial interaction is intentionally low-pressure – a conversation framed as simply building rapport, rather than actively seeking funding. Its purpose is to gain visibility with investors, increasing the likelihood they’ll respond when you eventually begin your formal fundraising efforts, simply because they already recognize your name and company.

However, the pre-pitch extends beyond mere awareness. Cultivating relationships with prospective investors necessitates adopting a marketing-oriented mindset, with much of the groundwork laid well before any capital request is made.

Benefits of a Proactive Approach

Employing the pre-pitch strategy offers several distinct advantages:

• Reduced Pressure: The absence of an immediate funding request allows for a more relaxed presentation. Offering a preview, rather than a plea, minimizes anxiety and fosters more genuine connections. A lack of fit isn’t a concern.
• Honest Evaluation: Without the pressure of securing funds, you’re more likely to receive candid and constructive feedback.
• Establishing a Benchmark: Clearly articulate your current position, explaining why now isn’t the optimal time for a capital raise, and outlining the milestones that remain before you’re ready.
• Demonstrated Reliability: Showcase your current performance and articulate your short-term goals. This allows you to later demonstrate your ability to achieve stated objectives, building trust through tangible results.

Seven Strategies for Cultivating Venture Capitalist Relationships

Many founders question the optimal approach when initiating contact with potential investors for future funding rounds. The following points outline effective methods for establishing these crucial pre-pitch connections.

Prioritize Relationship Building Over Immediate Funding

Acknowledge your current stage of development, yet express the possibility of a future alignment. Clearly communicate your intention to explore a potential long-term partnership, rather than solely seeking capital. Avoid premature requests and allow the connection to develop naturally.

For instance, you could state: “We are not currently seeking investment, and may be at a relatively early stage for your firm. However, we believe our trajectory could align with your investment interests, and we’d value the opportunity to establish a relationship and assess potential future compatibility.”

Value Everyone’s Time and Be Direct

Avoid prolonged engagement if a mutually beneficial relationship appears unlikely. After a thorough understanding of both your business and the investor’s criteria, directly inquire about potential fit. Set aside personal ego and immediate capital requirements.

Consider phrasing it as: “To respect everyone’s time, I’d appreciate your candid assessment – do you foresee a potential alignment between our company and your investment strategy at some point? I’m prepared for honest feedback.”

Maintain a Business-Focused Approach

While fostering a friendly rapport is beneficial, avoid crossing into purely social territory. Remember this is a professional relationship with the ultimate goal of securing future investment. Becoming solely a ‘friend’ will not advance your funding objectives.

You might say: “We anticipate launching a formal funding process in the future, though we don’t believe we’re at that stage currently.” Adding, “However, I may be mistaken. Would your firm be interested in a first look when we are ready?”

Demonstrate Commitment Through Achievable Milestones

Present a clear roadmap of your Key Performance Indicators (KPIs). Ensure these targets are realistically attainable to facilitate a compelling demonstration of progress during future discussions.

Frame it as: “Over the next nine months, we will focus on achieving these specific milestones, which we believe represent significant inflection points in our value proposition.”

Essentially, you are conveying: “We will deliver on these objectives, and upon revisiting this discussion in twelve months, we will present the same KPI targets, demonstrate our accomplishments, and then discuss the appropriate time for investment.”

Seek Guidance from Aligned Investors

Exercise caution and discernment. If an investor lacks experience in your sector, has limited industry knowledge, or typically invests in later-stage companies, avoid tailoring your business to fit their preferences. Focus your inquiries on investors who demonstrably align with your company’s profile.

However, if they appear to be a strong potential fit, ask: “What key characteristics do you seek in investment opportunities? What developmental milestones are particularly compelling for businesses within our industry?”

Consistent insights from multiple well-aligned investors can effectively guide your strategic planning and milestone definition.

Leverage the Power of Referrals

Recognize the potential value of introductions. Venture capitalists frequently exchange information and actively network with investors involved in earlier funding rounds. If an investor has previously invested in your space, they likely possess connections to potential investors suitable for your current needs.

A direct approach could be: “Are you aware of any other venture capitalists who might be a good fit for our company, either for this current round or a future one?” Follow up with: “Would you be willing to facilitate an introduction? We’ll ensure you receive positive feedback.”

Nurture Your Investor Network with Consistent Updates

Regular investor updates are essential for establishing yourself as a prepared and professional entity. Begin this practice immediately. Cultivate all your relationships, as those who aren’t ready to invest today may be positioned to do so in a year or eighteen months.

Early Engagement with Investors is Encouraged

It's important to dispel the notion that you need a substantial history of successful initial public offerings (IPOs) and exits to engage with investors. Savvy investors are often keen to connect with founders at earlier stages.

Thorough research into potential investors and a realistic assessment of your company’s current stage of development can be valuable assets when initiating contact.

Proactive Investor Research

When monitoring activity within your industry, pay attention to which venture capital funds are participating in similar deals. Observing fund involvement in relevant press releases can provide valuable insights.

If you determine a strong alignment between your company and a particular VC firm, don't delay in establishing communication.

Identifying potential investors early allows for relationship building and a better understanding of their investment criteria.

Potential for Immediate Investment

It is uncommon, but venture capitalists may occasionally adjust their investment standards when presented with a strong business concept and a company that nearly meets their requirements.

Andrew Pawlak, founder of leadPops, a sales technology firm focused on the mortgage industry, shared an experience regarding a potential investor for a subsequent funding round:

If an investor fully grasps your business strategy, and the financial data is promising alongside a capable team, they may be inclined to modify their investment guidelines to participate in your growth.

Leveraging Investor Interest

Investors are inherently opportunity-driven, meaning that if they perceive significant potential in your business, they might be motivated by the fear of missing out (FOMO).

By initiating contact with a focus on building a relationship – rather than immediately requesting funding – you position yourself favorably to benefit from this potential interest.

Establishing a connection by suggesting a collaborative approach, such as “Let’s explore a partnership, VC,” can be more effective than a direct solicitation of capital.

Capitalizing on a Strong First Impression

This strategy places you in a strong position to secure investment when the time is right, as you’ve already cultivated a rapport and demonstrated the value of your company.

Approaching investors with a relationship-first mindset can unlock opportunities that might otherwise be unavailable.

• Key Takeaway: Building relationships with VCs before needing funding can increase your chances of securing investment.