For entrepreneurs attempting to raise funds for their venture, an over-the-transom solicitation directly or via a fundraising intermediary is rarely as effective as an endorsed introduction from a portfolio company or from another VC.
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If a member of one of my portfolio companies recommends I meet someone, I will most likely accept a meeting without hesitation. My portfolio company knows its market space better than I, so if they find a fellow entrepreneur’s startup proposition compelling, this is tremendously valuable insight for me which creates some of the most relevant deal flow.
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Similarly, an endorsed introduction to a company from one of my fellow VCs jumps to the top of the deal flow pile. The VC likely knows my area of investment interest and out of mutual respect will not refer me to a project he doesn’t believe in.
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It follows that occasionally I come across an investment opportunity which I would like to share with another VC. This could fall into three categories: i) a new opportunity in which I would like to co-invest, ii) a refinancing of a company already in my portfolio, and iii) an opportunity in which I cannot (or will not) invest but judge merits a referral.
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The first category is quite straightfoward and relatively higher probability, since the fellow VC’s interests would be perfectly aligned with mine in jointly investing in the new deal. The second category presents a slight misalignment, since the conditions of the new round will likely differ from my original investment conditions. Still, such an introduction could make a lot of sense. I know the other VC’s style and abilities, and have some idea of the value they could bring to my portfolio company beyond just funding. They in turn know my own style and flaws, and furthermore they know that I would not invite them to join me in this multi-year adventure if I did not hold deep conviction about my portfolio company’s future prospects.
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There are several reasons, however, for which I will not invest in an opportunity but feel that a personal introduction to another fund is warranted. Perhaps the opportunity falls outside our investment sweet spot, or perhaps our available funds are simply tied up with other projects, etc. If I believe the opportunity in question could be a good fit for another investor, I will occasionally offer to make a personal introduction for the entrepreneur. Sometimes, this is less effective than other avenues the entrepreneur prefers to use to reach other investors. That’s fine. And I will only offer this if I think the venture matches the interest of another VC that I know well (so please don’t conclude that by not offering to do this I don’t believe in your project).
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Entrepreneurs ask me all the time if I can provide them a list of every VC I think may be relevant so that they can follow up directly. I fully understand this request and do not condemn it in any way; however, my personal opinion is that it’s far more more effective if I first discuss the opportunity with the other investor(s) privately. This creates a safe dialogue with the other VC(s) who can review the opportunity on their own terms knowing that they won’t risk being pestered by an (admirably) persistent entrepreneur. Please specify which information I can share in confidence, if any. For if you feel find my request for carte blanche on whom I contact, that’s perfectly understandable too.