There’s tons of advice out there about how to approach venture capitalists for startup fundraising, but in my experience as both a former VC and current founder, I’ve found there is no one-size-fits-all method.
Venture capital investors get into the industry for many different reasons and come from a wide variety of backgrounds that shape their perspectives on the companies they consider for investments.
Founders must understand which kind of VC investor they’re dealing with to have the best shot at closing a funding round. Here are the four personas of venture capital investors, and what founders can do to partner with them:
#1: The follower
It’s incredibly difficult to predict which companies will be big winners in the long run, and for early-career investors, getting your first 3-5 investment bets wrong can limit your future career prospects. That’s why investors in the follower category care that other credible brands are investing alongside them: latching onto big name interest can help de-risk high-pressure investment decisions. This is the VC version of, “you don’t get fired for buying IBM.”
These investors will never go out on a limb to fund something solely based on its thesis or early business metrics. When you dig into their portfolios, you’ll see followers rarely lead funding rounds and are investing alongside brand name investors 95% of the time. If they do lead an investment, the company is usually led by a well-known repeat founder or a close friend, or the company has already raised 2-3 financing rounds from blue chip investors, which makes leading a Series C+ feel safe.
Founders must understand which kind of VC investor they’re dealing with to have the best shot at closing a funding round.
This is the most common type of VC persona, and the trend-following approach can be quite successful. In fact, there is a whole discipline of public market quant investing called “trend following” that has made this strategy systematic. Despite its strong academic validation as an investment strategy, nobody likes to be called a “follower” and because of this, followers will almost never admit to being followers.
For founders approaching this type of investor, it’s critical to get one of the other three types of VCs on board before reaching out. With that investor’s term sheet in hand, you can then syndicate your round to one or more followers.
#2: The academic
Investors in the academic category have clear theses and do not stray from them. They deeply understand your company’s space and have the knowledge and network needed to conduct due diligence on the business. Academic investors can become extraordinarily valuable thought partners and almost feel like co-founders in how they help you build on your thesis.
Academics are leaders. At the early stage, they are often the first investors or lead rounds largely by themselves. At later stages, they are not afraid to invest at inflection points and often catalyze turnarounds. This information is more difficult to see publicly but easy to detect in conversations. If you suspect an investor may be an academic, ask them what investment theses they’re working on. If the answer sounds vague, they are a follower or a feeler. If it sounds highly specific, they’re an academic.
For example, if you hear, “we’re really interested in how AI may be applied to vertical software,” they are a follower or feeler. If, instead, you hear something that sounds highly specific and even a bit confusing like, “I’ve met every neural chip company to launch over the past seven years and am convinced that analog chips are the only way to apply AI inference at the edge,” they are an academic.
To land an academic, make a list of investors whose theses match yours. These investors generally write about their investment theses in order to attract deal flow. Make sure you have read their work and understand their perspective before you ask for an introduction or reach out cold. Before meeting the investor, clearly articulate the essence of your thesis and pair it with any evidence you have that it will work (e.g., customer interviews) or is already working (e.g., retentive cohort analysis and rapid revenue growth).
If you meet a thesis-driven investor and approach them with thoughtfulness and evidence, you will secure financing over the course of a few meetings. You can also ask academics who their favorite thought partners are to broaden your search among similar investors interested in your thesis/company.
#3: The feeler
These investors look to their gut to tell them whether to make an investment. They fall in love with an idea or a team, and when they do, they write checks quickly. They are astute judges of people and can seem like magicians to the outside world, backing hit after hit with seemingly no patterns linking them together. Feelers can be incredible supporters who back you even in the dark days of your journey, though I recommend keeping them to 5%-10% of your target investor mix and avoiding drawing any big conclusions from their feedback because there is nothing you can control that will cause them to choose you.
Feelers often have public personas and participate in conversations that span a wide range of topics. Their portfolios often look like those of followers because they have many disparate investments, often with top tier co-investors. Where they differ, however, is they do lead deals solo. In some ways, they combine the public qualities of a follower and an academic.
To suss out a feeler, ask them to tell you about how they decide to invest. Feelers will often say things like, “I always trust my gut,” or “intuition is core to my investment process.” They will describe their conviction in people in deep, visceral ways. If you do not hear this, you are not talking to a feeler.
The challenge with courting a feeler is that they can seem indecipherable to founders. Taking a meeting and trying your luck is the only way to know whether there’s a match. Seek out their public perspectives but don’t overprepare for a meeting. In contrast to a thesis-driven investor who will appreciate your preparation and thought partnership, this work will have zero impact on a feeler. They either feel the potential of working together or they don’t, and there is nothing you can do about it!
#4: The analyst
Not to be confused with investment analysts employed by firms, the analyst persona is the most consistent and predictable type of investor. If a business is fundamentally valuable and the price and structure are right, there is always a deal to be had. These people will never be the highest bidder but they’ll always be straightforward partners. Your job is to get them the data they need to transparently analyze your business. You can iterate on a model together and raise your valuation or improve your terms by convincing them to change the discount rate around your assumptions. But you are literally collaborating with a logical machine and there is no gaming that system.
Publicly, analysts’ and academics’ portfolios look similar, but analysts care more about quantitative proof and metrics. If you ask what makes a great growth investment, analysts will say things like “I look at LTV/CAC cohorts.” If you hear the phrases “three-statement model,” “discounted cash flow (DCF),” “comparable company analysis (Comps),” or “magic number,” you are talking to an analyst. If you hear a deep and thoughtful thesis on a market but few references to numbers, you are talking to an academic.
Since analysts and academics will look similar publicly, go into meetings expecting to meet either type. This means being prepared with a solid set of 5-10 metrics that you can recite on a monthly basis. Ensure these metrics are demonstrating business growth. If they aren’t, you’re wasting time meeting with an analyst earlier than your business is ready to impress them.
Remember that while an analyst may push for a rapid deep dive into metrics, it’s OK to say you’re happy to dig in during a follow-up conversation, but that you want to ensure there is alignment on your thesis before diving in further. If you tease 5-10 metrics and then push back with quiet confidence, this often whets the analyst’s appetite to follow up and learn more. After the meeting, send an investment memo to the analyst. They will tear it apart and appreciate poking holes in your thoughtfulness. When you have iterated together on the logic behind your business and they feel like their objections have been quantified and discounted appropriately in your valuation, you will get a deal done.
Approach strategically to close successfully
Every VC is unique, but developing a fundraising strategy that accounts for these four most common types of investors can help founders find the right fit for their startup’s needs.
Instead of wasting time pitching the wrong type at the wrong time, you can devote more energy into getting in front of the investors you’re most likely to win over. In an unpredictable fundraising landscape, every pitch meeting counts, so know your audience and give them what they need to get to “yes” on your business.