My colleague, Thatcher Bell, once told me that the challenge in the fundraising process is in the matching. Each VC is looking for something different and it’s usually difficult for entrepreneurs to figure out what a VC wants before presenting to him.

To be clear, what differentiates a VC’s thesis is often far more nuanced than simply stage or sector. For example, within IT, some VCs are looking for companies that benefit from network effects, others want protectable technologies and others think a strong management team is the best barrier. Most funds would like to see all these characteristics, of course, but each makes different trade-offs when the time comes to make an investment decision. Ultimately, each VC fund differs in terms of what they need to see in an investment opportunity before it gets to “yes “.

The nuances of these strategies lead funds to pass on opportunities to invest in companies that align with their high level thesis: sector and stage. This fact can surprise entrepreneurs, frustrating those with high hopes.

As a result, when some entrepreneurs hear the unfortunate news, they try to fit into their new understanding of the investment thesis. Usually, doing so means making new claims about a fundamental characteristic of a business – often a characteristic that cannot be changed without revamping the entire business model. More often than not, this repositioning is not possible.

This tactic doesn’t work very well. VCs will typically see through this change immediately, leading the entrepreneur to lose credibility with the VC and potentially impacting the VC’s willingness to help the entrepreneur now or in the future. In the rare situations in which the VC doesn’t sort this out immediately, he will over the coming weeks of meetings and diligence. Ultimately, this will lead to a waste of the VC’s and the entrepreneur’s time.

It is important to understand this nuanced aspect of VC investment strategies before starting the fundraising process.

The best approach to fundraising is one in which entrepreneurs present their businesses as they actually are and continue to shop them around until they find a fit. Entrepreneurs that do this not only navigate the fundraising process more efficiently, but also gain the respect of the investment community along the way.

Comments

[Scott]

Very nice points. The only one I don't fully agree with is:

"The best approach to fundraising is one in which entrepreneurs present their businesses as they actually are and continue to shop them around until they find a fit. Entrepreneurs that do this not only navigate the fundraising process more efficiently, but also gain the respect of the investment community along the way."

That seems very inefficient to simply shop around your deals. I'd rather research, and conduct reverse due diligence on each VC firm through linkedin research, thefunded research and maybe even angelsoft.net

- Scott from http://scottdig.com

[digital dissertation]

Blogs are good for every one where we get lots of information for any topics nice job keep it up !!!