This is our second guest post (here was the first) written by a London-based VC. To allow them to speak plainly without jeopardising their fund or their career in the small village that is the London VC scene, I’m allowing them to post anonymously. FYI, LondonVC is a genuine VC and TechCrunch Europe has met them face to face.
There’s been a lot of tremendous discussion recently regarding the embarrassing practice of paying to pitch, such as here, by AVC Fred Wlson, Robert Scoble, all kicked off by Jason Calcanis here and later on here
Since more than enough has been said on this, I won’t get on my own soapbox except to add that obviously given the sentiment of my last post I agree without reservation that start-ups should never have to pay in order to present or pitch their business plan and company. Additionally, it’s unfortunate to note that in London, this practice seems to be even more prevalent than in the U.S. I know off the top of my head of a few groups that charge, including Envestors, London (in the region of £5,000), London Business Angels (around £1200 plus 5% of capital raised) and the London-based Angels Den (£799 and a 5% success fee).
But that aside, I thought it might be useful to clarify whether or not we (VCs) use business/angel groups as sources of deal flow. Answer: No.
Or to put it another way: If you think that by paying to pitch for some kind of business plan pitch preparation scheme or Angel network that you will be starting on the road towards meeting a venture capitalist you are basically wrong.
So that should hopefully put your minds at ease that we are not supporting the current practice or practitioners, and if they tell you we do, don’t believe them. I think you’ll see from the many comments on Jason’s blog post and others that all of the VCs are consistent in saying that they don’t like charging companies to present. Full stop.
So how do we really source our deals. In roughly the order of interest to us, they are as follows:
Introductions: As you can imagine there are many sources, but the most common and valuable are from: Existing portfolio company founders and entrepreneurs. These are probably the most valuable because if we’ve backed one group of people and believe in their vision, work ethic, likelihood of success, ability to build a team and company, then we will very likely also value their judgement in other entrepreneurs and operators
Previous colleagues and co-workers: I’m obviously biased but I believe that the most valuable investors are ones with operational experience. Aside from the obvious benefit of being able to actually help build, grow and add value to a company, the other benefit (simply for the VC firm) is deal flow itself. Some of our best deals have come from people with whom we’ve worked directly in the past and whose judgement we value and respect based on our personal and firsthand experience.
Fellow investors: This could be someone who has already agreed to lead an investment and is looking for co-investors or to fill out a syndicate or club deal. On the other hand this could also be from another investment team who is not going to be involved in the deal for one reason or another (wrong stage, size, fit) but who suggests that we take a look.
Events and networking: This includes the ones you’d assume such as Seedcamp, LeWeb, The Next Web Conference and other events across Europe, as well as other independent and regional startup competitions. There is also OpenCoffee, MiniBar, and of course TechCrunch events in the US, Europe and globally.
You’ll see next that I also mention “cold calls” as a separate category, and the reason events are less of a cold call than other forms is because simply being at the same event already gives some form of context and mutual interest in some specific space, sector, approach, or category. Additionally, it’s very likely that at an event entrepreneurs are introduced by someone else at the event, so that gives the contact more of a personal introduction feel rather than a cold call – which is an important distinction.
“Cold calls”: Similar to an event introduction (but without the event), this is simply when entrepreneurs contact us directly and out of the blue. I won’t lie, an introduction from someone we already know – as mentioned above – is always much more valuable than a cold call, but if you’re able to seek us out, get in touch, and write an email/ping that gets our attention that’s appreciated and always considered as well. We get messages on LinkedIn, Xing, Facebook and of course tweets.
Self-sourced: Very occasionally because we really like a certain space, concept, idea or see an opportunity somewhere, we may go seek out someone who might be thinking about something similar or have a similar point of view. So don’t be surprised (and hope you don’t mind) if we come knocking on your door. And we’ll simply use the same methods described above – We’ll try first for a mutual contact to introduce us, but we’re definitely not afraid to cold call.
I would expect that some folks will find this post to be overstating the obvious and others have posted similarly, including askthevc from earlier in the year (Where Do Venture Capitalists Find Their Companies?) but since I’ve been asked quite a few times – especially lately – I thought it couldn’t hurt to lay it out (again).
The bottom line is that as investors, we live and die by investing in great companies. In order to do this, we need to find these companies in the first place. No matter what anyone says, and even though we already have great deal flow, we still need and want to meet more great entrepreneurs. Like anything else in life, we never know when the next great thing is going to come along or how we might run into it. If you’ve got an introduction to make or an idea brewing, then get an introduction from an existing entrepreneur, or find the venture guy you want to talk to at the obvious event. But definitely don’t pay to pitch.