How to Strategically Target the Right Venture Capital Firms

If you’re a founder of a business, you know that raising capital is no small feat. Whether it’s through crowdsourcing, loans, grants, or venture capital (VC) funding, it’s difficult — but necessary — to attain capital. And while it’s certainly an option to ask friends and family members for a loan, that initial investment only goes so far. As you scale your business, a continuous flow of capital is necessary. Enter: VC firms.

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Even beyond the glitz and glamor of working with a big-name VC firm, acquiring funding from a VC can help to pave the way for a potential future source of capital. While a VC firm is by no means guaranteed to fund your entire business journey, the name recognition and connections can definitely help. And once the first round of capital is raised, the chances of a second or third round being raised only get better.

But how do you target the right VC firm? Creating pitch decks and meeting with a bunch of VCs in a week is doable, but is it the best use of your time? Here, we share a few strategies, taken from the mouths of VCs themselves, on how to best find and make a case for your business to acquire capital.

The Pre-Work for Targeting the Right VCs

First, before you even create your pitch deck, it’s essential to do the pre-work. The pre-work includes two main components of research: sector and stage.

Sector

Not every VC firm is going to be interested in investing in your business, no matter how brilliant of an idea you might have. Each VC firm tends to invest in certain sectors, whether that be health-tech, education, or cryptocurrency. It’s a waste of time to go to a VC that primarily invests in cryptocurrency if your business is related to health-tech. Instead, be strategic and seek out the VCs that are most likely to invest in your sector.

Even among more general VC firms, it’s a good idea to investigate if that firm has invested in a company within your sector in the past. While it’s not impossible that they’ll take a chance on a new sector, you have a higher chance of receiving funding if they’ve already worked with similar companies.

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Stage

Next, make sure the VC is at the right stage for you. If you’re a pre-seed founder who’s pitching to VCs that only fund Series A startups, you might not get very far. While some VC firms can stay with a founder through multiple funding rounds — and that’s often the appeal of VC funding compared to loans, crowdfunding, or grants — it’s not a given for every firm out there. Doing a little bit of pre-pitch research with sources like Crunchbase, PitchBook, or Faith Driven Investor can help save you time and energy if the VC isn’t the right fit for your company.

Using Your Story to Target the Right VCs

So you’ve shortlisted a few VC firms that are aligned with your company’s stage and sector — now it’s time to impress them with your pitch deck.

“Once you get through the door — elevator pitch, a couple sentences about what you do — now you have somewhere between 20-45 minutes to convey why this company is the one that person should be investing in,” investor Beth Ferreira at FirstMark Capital said.

“Usually a ten-page deck is what works well for that time frame… always be prepared with that,” she said. “You may not always use it, but the risk in short-period of time pitches is that, if it's not highly structured, you won't allow the investor to get all the information they need to make a decision. It's actually a tricky thing — you want to have a casual and open convo because you're getting to know each other, but there is an onus to get all that information out in that time frame,” Ferreira said. “I’ve seen founders without a pitch deck meander.”

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While the components of a standard pitch deck are pretty much the same, the most important element is your story. Why you? Why your team? Why your business idea? It’s crucial to be able to tell a good story in-person and captivate your audience, but remember — you only have a few minutes to make an impact with a VC. Knowing this, strategically incorporate your story into your pitch deck in tangible ways so that, even after you’ve left, your unique story and the spirit of your business remains when a group of investors go back through your materials. There are a few ways you can do this:

• Include a "Use of Funds" slide. This type of slide is a clear indicator that a founder can articulate how they plan to scale their business, that they know what they’re doing, and that they have a vision for how to get there. It’s also a straightforward way for investors to see how their money directly impacts and broadens your story.

• Dig into the financials. This is another area where it’s important to not just have the right figures, but to also showcase how these numbers contribute to the story of your company. You want your storytelling to be broken down in such a way that investors can execute on various aspects of it through their funding, so contextualizing the financials in this way is key.

• Talk about your team. Highlight the people that help run your business (including you)! It’s never easy to talk about yourself, but remember — an investment in your company is an investment in you and the people you’ve brought on board who believe in the vision and mission of your business. This can help convince investors that your company is a good investment until it can start producing the figures that will illustrate that long-term.

Understand the VC

Finally, before you walk into a meeting with a VC firm, it’s important to understand how a VC firm operates and makes money. All VCs have a portfolio strategy that determines the amount they invest in startups while still allowing them to pay back their own investors. As a result, your company needs to have a higher rate of return — as high as three, five, or ten times — if you hope to receive VC funding. This high of a return rate isn’t expected with other forms of capital like crowdfunding or loans.

It’s beneficial to figure out if your business is capable of returning those figures before you put time and resources into connecting with VCs and making your pitch. If you’re not looking to scale a company, and instead want to keep it as a small business, other financing options might be a better fit. As enticing as it may be to secure VC funding, it’s not always the right move for every company.

“I invest in two, maybe three deals a year, but I look at many many more, in the thousands,” Ferreira said. “It becomes a numbers game.” Not every entrepreneur needs to play that game, though, so take some time to evaluate if it’s the best approach for your business.

The Value of VCs Beyond Capital

It’s also important to know that VC support can go beyond capital. There’s an old saying in the business — “Ask for help, get capital. Ask for capital, get help.” As a founder, having a “wishlist” of what you need (even beyond capital investment) to operate your business is key. For example, you may need counsel or advice, or access to recruiters. Perhaps you‘re looking to break into the industry that a VC invests in, even if your business operates in another field.

Think beyond the money and find ways to use VCs to your advantage, even if they can’t provide capital. This list of questions for a VC is a great resource to get started and to better understand how a VC firm can help you, even if they’re not financially supporting your business. For more support outside of funding, check out how Justworks can help you accelerate your business, automate your day-to-day, hire and onboard remote teams, and take better care of your employees. No matter what stage your business is at, Justworks has your back.