Lessons Learned About Investing that VCs Don’t Tell Entrepreneurs

May 20, 2022

In my decades of experience investing in early stage companies, I have rarely come across founders who have a solid understanding of the fundraising process, how venture capitalists think and what makes them invest. Founders absolutely need to understand the minds of their current and future investors, but there are not enough resources in the market to help entrepreneurs thoroughly understand the venture capital process. 

Here are five things I’ve learned about investing you won’t hear from venture capitalists:

1. Venture capital is a numbers game. 

Only 1% of fundraising attempts are successful. You need to prepare to be rejected a lot before you find the right funder. You may have to meet a hundred people before you find the person you’re looking for. But you don’t need everyone to say yes—you just need the right one to say yes.

You should know if your pitch is resonating with the investor in the first five minutes of your conversation. If it's not resonating, don't stress about it—they aren’t for you. You should, however, ask them how you can improve your pitch. Your goal is to come out of every meeting with an idea of how to make your pitch stronger.

2. Know your audience.

Venture capitalists are human beings, so treat them as such. Not every venture capitalist is willing to fund you—in fact, very few are. You need to narrowly target who you’re pitching to and know exactly how to pitch to them. There are some helpful indicators to help you make an effective pitch to a specific audience. Consider speaking with another company who received an investment from the firm you are targeting. What got the investor to buy-in? Are there certain characteristics you should be mindful of before pitching the firm?

Also consider every facet of the VC’s makeup: fund size, early vs. late stage, willingness to act as the lead investor, etc. And, even more tactically, consider the age group of the firm you’re pitching. Perhaps, generally speaking, their age group or previous funding successes give a certain firm an appreciation for B2C businesses. Others might have a penchant for specific industries and a strong understanding of its legacy businesses and therefore how to succeed within a specific market. The more nuanced and targeted your pitch is, the more likely you are to get a favorable response.

3. Give investors lines, not dots. 

You know you have what it takes to run a business, but you have to be able to convince others of that fact. Investors receive hundreds of pitch decks a month. They don't have time to read everything in detail, so if there’s something in your pitch deck that isn’t directly making your case, remove it. You need your value proposition to be as clear and unequivocal as possible. Do not give investors disparate pieces of information and hope they can understand your case—you must connect the proverbial “dots” for them. I call that giving investors “lines,” not dots. You are responsible for weaving a linear narrative that effortlessly connects key data points and company information together with real-world problems, a clear market need and a strong case for ROI.

4. Not all firms and not all partners at those firms are equal.

One of the most helpful things you can do for your business is choosing the right people to work with. There are plenty of credentialed, qualified people (on paper) who could work with you, but a successful working relationship develops and flourishes through chemistry and relationship-building. 

Picking the right venture capital firm is important, but what is even more important is finding the right person within a firm who understands your industry, is passionate about your company and understands the value you are delivering to your customers.

If you are considering inviting investors to serve on your board, the last thing you want is someone who is only there to observe a return on their investment. What you need is someone who believes in the problem you're solving and is willing to provide hands-on guidance to help your business succeed.

5. Get comfortable saying, “I don't know.” 

When I'm investing, I often receive pitches from companies that don’t have a product or aren’t realizing revenue yet. So, how can they convince me they are a great company to invest in? First, I look at the caliber of their team.

In particular, I care deeply about the authenticity of the founders when they respond to my questions. I have always respected founders who are honest with me and are willing to say, “I don't know the answer to this question, but I’ll find it and get you the information.” There is power in knowing what you don’t know and showing that you’re willing to put the work in to understand an issue and ultimately make a stronger case on the other side.

It is certainly important to showcase your knowledge within your or your business’s subject matter expertise, but there is no bigger red flag than someone who is clearly making up facts or figures. Instead of making confident assertions when you don’t know a piece of information, tell the investors what facts you are working with and what extrapolations you are making based on those facts. Trust me, they will respect you more for it.

About the Author
Vijay Tirathrai

Vijay Tirathrai is a Managing Director of Techstars. Previously he was the Global CEO and Chairman of the Entrepreneurs Organization (EO) based in Washington D.C. Vijay has been a serial entrepreneur, an impact investor and a thought leader who serves on several boards of technology companies and nonprofits.