Steps To Engaging Investors From The VC Perspective (Part I)
Our very own London (70 Wilson) Labs Manager Kim van Haalen interviewed William Mercer, Venture Director and Investor at Zag to discuss the fundraising process from the investor perspective. This is Part I of a III-Part series focused on the initial outreach to a formal meeting to the follow-up process and quick tips.
Kim van Haalen: For some context as it pertains to your role and fund, please tell us a bit about Zag.
William Mercer: Zag, a growth consultancy founded by BBH a creative agency, invests in early-stage startups at seed stage (usually around £150,000). Apart from cash, we invest our creative services to help seed stage, tech-powered startups scale at speed. We are often the first institutional investor and, generally look at consumer, marketing and ad tech. Occasionally we partner with founders at a very early stage and invest our world-class creative and strategic services to help them grow. Our sweet spot is a founder with a great product with a great story to tell, but who isn't quite sure how to get that product out or how to articulate that message.
KVH: What is the process you take startups through when investing?
WM: The process is generally as follows:
1) We usually receive the deck over email
2) Initial 30-minute intro phone call
3) In-person meeting with more people from the investment committee + experts
4) Internal investment committee meeting
5) Term sheet offer
6) Negotiations / legal and financial due diligence
KVH: Where does your deal flow come from?
WM: Our total deal flow, I'd say 5% are cold emails, then 30% will be, for example, from us attending startup events, accelerator demo days, etc. And the last 65% will be inbound warm leads from our network, including direct introductions from accelerators like WeWork Labs.
KVH: What is the best way for a founder to reach or contact you?
WM: A warm introduction is always the best (i.e. a mutual person in common who introduces a founder), but otherwise a succinct, well researched cold email can work. I generally expect an email with less than 10 sentences. One sentence of introduction, one sentence of who connected you to us (if any), and why they thought we were a good fit. Then three bullets about the business and proof points; anything that gives evidence of traction, that could also just be key advisors. Then, one sentence about why they’ve selected Zag. Finish with a link to your deck.
KVH: Do you recommend founders always include their deck in their first email?
WM: It's a bit like applying for a job. You don't just send a cover letter, you also always attach a CV. The goal is to get that interview. So yes, I’d say you always include a deck. If there’s no deck, you’ve got to give me some very strong proof points. Like you’re backed by Eric Schmidt, or you’ve sold 5,000 units so far, or you’ve only been going for X months and you already have 20,000 month to month user growth. Something to spark my interest.
KVH: What’s your view on outreach via LinkedIn?
WM: I personally ignore LinkedIn. As an investor on LinkedIn, you get a lot of spam from founders who reach out without doing their homework e.g. hey haven’t even read your website. They don’t know anything about Zag our investment thesis so usually they are unqualified leads for us (i.e. a complete waste of time).
KVH: What happens if their deck or email sparked your interest?
WM: After sifting through the deck, we’d either invite you for a first call or politely say no. A startup I would say no to at this very early stage in the process, would usually have something in their deck that clearly does not fit our thesis or investment criteria.
KVH: What do you ask in that first call?
WM: During that first introductory call, I will walk through the investment logic behind their deck. This means interrogating your knowledge of the industry, how much progress you’ve made etc. Whilst some investors find market size by far the most important, for me it’s the team. I need to see their personal connection with the problem or opportunity.
The thing about startups with a really good investment deck is that there is a clear logic chain. It usually looks something like ‘We develop(ed) Solution A for Problem B. Solution A is different to other solutions because of Quality C. We tested it with this traction-to-date, these unit metrics and this is our go-to-market-strategy. And we’ll execute it with this team. And this is why our competitors are behind. For these reasons, this is how much we're raising, here are the financials for what we’ll spend it on, where it will take us, and this is when you can approximately expect to get your money back.’
KVH: Sometimes founders are cut off 15 minutes into an investor call, or the opposite. The call lasts for an hour even though it was planned for 30 minutes. What, to you, should they take from either of those scenarios?
WM: The more seasoned the investor, the shorter the call. Top tier funds received hundreds of decks so they’ll give you less time. Generally, if I know I'm going to say no to someone, I feel guilty, and my way of making up for that is giving them more of my time. So longer isn’t necessarily better. If I cut you off after 15 minutes, I'd say 10% of the time it is because you've got a really clear value prop and then it's on to a meeting.
KVH: In our cohorts, sometimes the conversion from call to meeting is quite low. How should founders ideally follow up after that initial call?
WM: I always expect the founder to come back to me to set up the meeting. It's on them to follow up because, realistically, it’s a supply / demand issue. You're selling your business to me, I'm buying it with my cash. I know people say this a lot, but it is similar to dating. If you’ve been on a date with someone like a film star, there are no shortages of other people interested in them. That means some persistence is key if you want to get a second meeting.
In terms of follow-up sequence and etiquette, be persistent but not annoying. My suggestion would be to email ideally within the first 24-hours after the initial call thanking them for their time, attaching any follow up info and suggesting some dates. If you don’t get a reply, email again in three to five days. One week later, follow up for the last time, after which it’s generally safe to assume they’re not replying because they’re not enthusiastic. I think generally, three follow up emails max. Back to the dating analogy; they might have had a nice time but they’re just not feeling it. The investor might either not have had an emotional click with your business, or they don’t have any cash left; there can be many reasons, so don't take it personally.
KVH: Are you worried you will miss out on a deal because you were too late in responding?
WM: For a slam-dunk startup, I know I need to move quicker. If Eric Schmidt is on your advisory board, I know you’ll raise seed capital regardless, and others will throw cash at you. But in reality, that’s maybe 1% of the startups and it's really rare that you'll come across them. In the end, it’s all about the ability for founders to generate the hype around their business.