Thinking About Thinking

An entrepreneur I really admire asked me for advice on how to handle associate cold calls from VC firms.  I thought the best way to answer that question is to share what happens after the cold call so entrepreneurs can deduce for themselves how to handle it.  I’ll describe what happens at Volition Capital, but having been in the industry for 14 years at a few different firms, we’re a broad proxy of what happens at other firms.  Where we might be distinct is as a smaller firm, the partnership probably gets involved earlier and more broadly than at other firms.  Given that, let’s see what happens after the cold call:

[click]  The conversation with the associate is over.  The associate will then enter the notes of the call into Salesforce.  If the company is deemed by the associate to fit our specs both in terms of what the company does and our investment focus (more on this later), the notes of the conversation will be emailed to the entire investment team.   Elevating the visibility of the company through this means happens irrespective of whether the company is interested in raising capital.  Every investment partner at the firm will read the notes of that call within 24 hours.  Typically some email dialogue on the company occurs at this time.  In addition, those notes will be included in a packet for discussion at our Monday team meeting.   We discuss every company that has been elevated in this way every Monday.  It is at this meeting that we decide next steps, if any, with the company.

So, the net of it is very clearly this:  If you want partner visibility for your company – talk to the associate.  

Associates are assets to you in two ways: (1) They know what kind of opportunity the firm gets excited about, and (2) They know which partner would probably like the opportunity the most.  As one of the managing partners in my firm, I absolutely pay attention when an associate is excited and has conviction around a company.  I trust the judgment of the associates at our firm.  So, my advice to companies is if you want to have the conversation with the associate – treat the associate like you’re talking to a partner because the salient points of what you communicate will not just get to one partner, but all of the partners of our firm.

What about the conventional wisdom that some entrepreneurs adopt which is to tell the associate you won’t talk to anyone besides a partner?  I presume entrepreneurs ask this question to assess how interested the VC firm really is in their company so as to not waste their own time.  The logic being that if the VC firm is really interested, they’ll get a partner on the phone.  I don’t believe this approach actually accomplishes that.  What this approach forces is for the associate to make a deduction about whether your company is worth partner time, without knowing much about your company.  So, the associate essentially has to guess.  Whether this approach leads to a call with a partner is based less on the merits of your company, and moreso on whether the associate is a good guesser.  It’s more or less left up to chance.

The better approach in my mind is to ask the associate what specifications he or she is looking for and decide whether you should do the call based on how closely your company fits those specifications.  For example, if you asked a Volition associate what our investment focus is, they would say this:

• Sectors: Internet, software/SAAS, tech-enabled services, information services
• Revenue: Typically $5M-$30M+ revenue
• Revenue growth: 25%+ minimum, typically 50%-100%
• Financing history: limited or no prior capital raised
• Profitability: Near break-even or profitable
• Most importantly: Aspirations for Greatness.

Companies that get elevated to the entire firm typically fit most, if not all, of these criteria.  Other VC and growth equity firms likely have very different criteria, so this is clearly Volition-specific.  If the associate can’t give you specific criteria of what they’re looking for, then he or she is probably just fishing and their firm probably has more of a referral-based orientation.  In this case, it may make sense to ask for a partner.

Given this backdrop, if you think your company does or will eventually fit the spec of the calling firm, and you either want to build relationships with investors for down the road or raise capital in the not-too-distant future, then I’d say have the call.  If your company doesn’t fit the spec and likely won’t, then it’s completely fair game to let the associate know that and politely decline the call.  If you’re not sure, it never hurts to know what firms are looking for and just keep your own database for future reference.

I hope this is helpful.  If you have other questions to demystify the VC process, please feel free to comment.  If your company fits the criteria I stated above, feel free to call me or any of our associates – it’s all the same :).