How To Take Advantage Of The VC Decision Making Process
As described in my post, How VCs Make Investment Decisions Internally, there are three major decision making processes used by VC funds: Union, Federalist and Democracy.
As an entrepreneur you should try to understand each VC’s decision making process as soon as you can. The best way to figure this out is to simply ask your contact how their process works.
If the VC fund uses a Federalist model the process should be straight forward. Focus on generating interest with the partner that is your primary contact. However, if the VC fund uses a Union or Democracy decision making process you will need to try to get most or all of the fund’s partners excited about your company. In order to do this you should be prepared to repeat your high-level pitch as you meet with new partners – don’t assume that your primary contact has done your pitch justice when talking to other partners. Another key tactic you should employ is sending frequent materials and email updates along that your primary contact can forward to the rest of the partnership. This can help generate curiosity, if not interest.
While your tactics for creating interest in Union and Democracy partnerships will likely be similar, your access to the partners may vary considerably. In a fund that uses a Union process, your contact will have an incentive to have all of their partners meet with you. In a Democracy, there may be too many partners for that to be realistic. As a result, you will need to make more of an effort to get mindshare from other partners.
One tactic that you should consider using in a Democracy environment is gently asking your lead partner if there are other members of the partnership that you should present to. Usually, this works best if you ask to present to specific partners who you have identified as having relevant experience in your space. However, if you employ this tactic do it delicately and be careful not to appear as though you want to go above your primary contact. There are probably politics within the partnership that you don’t know about so be sure to make the lead partner feel comfortable that they are driving the process of socializing your business within the firm. This tactic should be poised as a subtle question (e.g., “do you think it would be helpful for John to take a look at our business given his experience in the sector?”), nothing more.
It’s worthwhile to understand the decision making process early, as this context will help you more effectively engage the partnership.
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