Welcome to the fifth edition of Signature Block, a newsletter for emerging fund managers. If someone forwarded this to you, subscribe here to get the next one in your inbox.
To get into hot deals, you need to give founders a reason to pick you over other investors. The “reverse pitch” is the VC’s opportunity to sell a founder on their unique value-add.
The “reverse pitch” has become more important as investing has become more competitive. There are more investors than ever before: In AngelList’s 2021 Year In Review, they reported that over 800 VCs are actively running funds and syndicates on the platform. Founders are also better educated about the fundraising process and what to look for in an investing partner thanks to Venture Hacks, YC, and many more founder-friendly resources.
In this post, you’ll hear directly from experienced investors how they convince founders to take their money. While every “reverse pitch” is unique to that investor (the best ones can’t be copied!), we’ve surfaced patterns for new fund managers that they can apply to their own pitch.
If you only have a few minutes, here are three main takeaways on how VCs convince founders to take their money:
- Your pitch needs to be relevant, differentiated, and authentic. The pitches that work best have all three.
- Start doing the job of an investor before investing. Investors that win competitive deals do more than just tell founders what they can help with, they show founders how they can help by providing support before securing an allocation.
- Offer a good “founder UX”. Investors who win, show up well-prepared, are responsive and run a transparent process. Investing is highly relationship-driven so the way an investor makes a founder feel matters a lot.
Shout out to Andre Charoo (Maple VC), Christoph Janz (Point Nine), Evan Tana & AJ Solimine (Script Capital), Jason Lemkin (SaaStr), Jeff Morris Jr. & Mene Mazarakis (Chapter One), Jenny He (Position Ventures), Jenny Lefcourt (Freestyle VC), Julian Shapiro (Julian Capital), Linda Xie (Scalar Capital), Michael Tam (Craft Ventures) and Niv Dror (Shrug) for contributing to this post.
One way to build a brand as an investor is to create a platform that helps founders. Jason Lemkin runs SaaStr, one of the world's largest communities of SaaS executives, founders, and builders. SaaStr creates content, runs a conference, and brings the SaaS community together. In doing so, Jason has become a magnet for self-selecting companies in the space that recognize his value.
“First, I mostly only invest in founders for whom I’m likely their top or one of their top choices of investor. Over 9 years of investing and leading 5 unicorns, decacorns or bigger from seed, I’ve learned I lose 100% of the deals where the founders don’t go into the first meeting with a desire to at least potentially pick me.
Second, I try to make it easy for the founders. I’m upfront about the odds of me investing after the first meeting. E.g. ‘If everything you’ve said is accurate, the odds I’d invest are pretty high.’ I also share my valuation and ownership constraints upfront, so they can opt-out if not a fit for them.
Finally, if their ask on valuation fits the model, I just agree to it. I don’t negotiate on price if it’s fair and a fit for our model. So far, I only negotiated price on one deal, Talkdesk, which is now worth $10 Billion. I ended up with a far worse deal by negotiating, since they didn’t need the money.”
— Jason Lemkin, SaaStr Fund
Another way to build a brand and demonstrate expertise is to create content on topics helpful to founders. Julian Shapiro publishes high-quality essays on product, growth, and marketing at Demand Curve and Julian.com. His content is differentiated both in terms of the content itself, the presentation (see his playbooks), and the distribution (Julian has a newsletter, a blog and 270K Twitter followers).
“I get into competitive deals by doing the following with founders:
- Brainstorming on product and growth over Zoom in real-time so show I’m strategically useful and not just an investor who "helps with intros”
- Pointing them toward my writing on growth and product to substantiate my ability to help them in these areas
- Making them feel that their time is what's valuable, not mine
- Moving quickly (without sacrificing diligence) and trying not to do too many calls”
— Julian Shapiro, Julian Capital
The core of Shrug’s differentiation is its network and speed. They’re super-connectors for founders and deliver results before the wire.
“We get into competitive deals making key strategic intros right after the meeting, and sending people the shrug.vc/deck which shows how we operate and what it's like working together. We occasionally do marketing stuff ahead of investing and/or asking people to vouch for us as a reference. I've seen that pushing hard or doing all of those things together doesn't ultimately end up making a big difference in competitive rounds, compared to just sending the deck and getting some people in that the founder appreciates. That may get you an allocation, but it's probably the one you would have gotten anyway.
What has moved the needle for increasing allocations is getting highly strategic/interesting people in through an SPV, where you do the work and get back to the founder with ‘look who is investing… do you want us to reduce them? :)’ and that tends to help increase allocation that way. But it's hard when a round is hot and founders just see name X name Y and it all looks the same compared to the value each person may ultimately bring to the cap table.” — Niv Dror, Shrug Capital
Linda Xie she was an early employee at Coinbase, has a strong following in web3, and is a prolific crypto writer. She provides value to founders upfront by coming well-prepared to pitch meetings, providing immediate help (e.g. feedback, intros, or resources), and coming to a decision quickly.
“The initial pitch meeting goes both ways and indicates to founders what a future relationship with the investor could be like. It’s important for me to come fully prepared having reviewed all of the materials, researched team backgrounds, and have my list of topics/questions that I need to be clarified along with any immediate feedback I can give to them on the product, deck, pitch, etc. After the meeting, I try to get back to the founders quickly on a decision since I’ve done a lot of the research upfront and where possible offer any further resources or intros. This has gone a long way in showing founders that I value their time and has helped us get into rounds.”
— Linda Xie, Scalar Capital
Position Ventures’ value is in their fund name. Jenny has built a reputation by working closely with over a hundred founders on their communications and positioning strategy. She was previously Director of PR at startup studio Expa, and has held several marketing/comms executive positions at various companies.
"At Position Ventures, most of the deals we invest in are oversubscribed and extremely competitive. As capital becomes commoditized, it’s never been more important to have a strong and unique position in the market. Our focus on helping founders with their positioning and communications strategy wins us deals. We get a ton of referrals from great founders we have backed who saw value in what we were able to bring to their business and proactively encourage other founders to work with us. For example, we were the first pre-seed investor in Justin Kan’s new company, Fractal. We got allocation in this extremely hot round because Justin came to us through another founder I had worked with and he wanted Position Ventures on board to support Fractal’s launch."
— Jenny He, Position Ventures
Point Nine has a strong background in SaaS and B2B marketplaces. They create valuable content for founders in the space (here’s the latest version of their famous SaaS Funding Napkin post, as an example) to communicate their expertise and way of thinking well before meeting founders.
“In many cases, founders already know that they want to work with us because they got several strong recommendations from people in their network. If we have to win a competitive deal, we try to explain the benefits of having P9 as an investor and help the founders due diligence us. We, of course, also try to run a fast, efficient, and transparent process.
When we win a competitive deal, I think it’s usually due to a combination of our reputation, the relationship we build with the team in the fundraising process, and reference calls done with founders of companies we’ve invested in.” — Christoph Janz, Point Nine
Chapter One differentiates itself by helping web3 companies hands-on with product, design, and data science support. This is enabled by their in-house full-stack product team. While JMJ has a strong operator background from web2 (ex-VP of Product and Revenue at Tinder), he’s also built a strong reputation in web3 as a seed investor in Dapper Labs, Compound Finance, The Graph, Dharma Labs (acq. OpenSea), Blockfolio (acq. FTX), and more. Menelaos was an early product manager on the crypto team at Meta (fka Libra) and also led civic election products at Instagram. Chapter One’s focus on product & design in web3 comes through in how they’ve built their team; they have a small investment team and a full-stack product team in-house that actively supports their portfolio. As investors gain more experience, their track record becomes their brand.
"At Chapter One we started doing the reverse pitch leveraging our full-stack product team. In the past year, we've added data science, research, community, and talent operators to the team to support both investing and founder experience. In terms of running the reverse pitch, we make a deck effectively pitching Chapter One to the companies we want to work with after we've had a few calls with the founders. Reverse pitches have been instrumental to showing the power of our full-stack product team and how each member of our team actively helps our portfolio.”
— Jeff Morris Jr. and Mene Mazarakis, Chapter One
Michael has an operator background and managed Uber's operationally-heavy business in Southern California. Before that he helped start a company that was acquired by P&G. Michael leads with the value he provides founders.
“My general approach is to build a relationship and do the job as an investor before actually investing. This entails introducing customers, unpacking a priority (e.g., pricing, accelerating sales), and introducing candidates for open roles. I might also have our broader Craft team meet with the founders. While I think our spike is GTM support, we have a platform team with expertise in recruiting, press, growth marketing, and legal affairs. Lastly, founders should collect off-sheet references with teams I've worked with but I'll also provide on-sheet references.” — Michael Tam, Craft Ventures
Evan and AJ bring their backgrounds as operators and investors to build a firm that can be helpful to founders that are very early. This is core to their brand. They subscribe to “actions speak louder than words”, and show founders how they can add value before writing the check.
“We’re big believers that actions speak louder than words when winning deals. Rather than just promise that we’ll partner deeply and roll up our sleeves, we’ll often get to work after the first meeting well before we’ve officially partnered up with customer introductions, sourcing early hires and compiling a list of investors to round out a fundraise. Rather than just say we’re conviction investors, we can actually get to a decision in a matter of days and don’t need to wait to see who else is investing or how the round is shaping up. Lastly, we believe it’s really important for founders to get a good sense of what it’s like to partner with us before deciding to take our money so we’ll proactively offer references to any of the founders in our portfolio who can tell them firsthand what it’s like to work with us.”
— Evan Tana and AJ Solimine, Script Capital
Andre was one of the first 25 employees at Uber where he helped launch Uber Canada. Andre’s operator background demonstrates to founders he can help with areas early-stage they need the most help in: hiring, growth and financing. Also, core to Maple VC’s value-add is their network of first 25 employees at companies like Instacart, Airbnb and Dropbox who are incentivized to support their portfolio.
“To get into competitive rounds, I demonstrate to founders that I can help them in the 3 main areas I aim to add value in - talent, growth and financing. I have operating experience as one of the first 25 employees at Uber. I hired the most influential executive at Uber, helped Uber grow in key markets like launching Canada and several of my investments have follow-on financing from top-tier investors including Sequoia, a16z, Greylock, Founders Fund, Lightspeed, Tiger, Insight and more. I often make intros to potential recruits, people who can help with growth like our network of early employees, and intros to top-tier VCs even before I have invested. We also open up access to our network of early employees who were the first 25 at companies including Instacart, Airbnb, HubSpot, Flexport, Dropbox, Away and more.”
— Andre Charoo, Maple VC
Jenny is a serial founder. She previously founded WeddingChannel.com (acquired: XOXO) and Bella Pictures (acquired: CPI). She has angel invested in and/or advised companies like Discord & Minted. She has been at Freestyle for almost a decade where she personally led the seed rounds of Better Up, Narvar, WELL Health, Embark, Crexi + others (Freestyle's portfolio also includes Airtable, Patreon, Intercom and Snapdocs!) She leads with the value she can provide as a serial founder but finds it most effective to connect founders with portfolio founders directly.
“The best way for us to win competitive deals is to have the founders connect with Freestyle portfolio company founders as early in the process as possible. The way we work with and support founders is differentiated from most other funds and hearing about it straight from portfolio founders is powerful. Here’s what I communicate to founders in a pitch (again, talking with Freestyle founders says it better than we ever could):
- As serial entrepreneurs, we know how to add value to founders on areas they actually need help with (vs annoy them) and approach supporting them with empathy
- We are high conviction, low volume investors enabling us to give them/their business a lot of time during the seed/early stages, and have a proven track record of deep support to back this up
- We also have a track record of supporting our seed companies get excellent partners and terms for their Series A. We work closely with them on the narrative, the pitch, and the process, and can make warm intros to the best partners for them. See my recent blog post on raising Series A here.” — Jenny Lefcourt, Freestyle
Hundreds of thousands of founders and makers have launched on Product Hunt, the company Ryan founded more than 8 years ago. It’s rare to meet a founder that hasn’t heard of the platform and as a result, founders often come to the pitch with an understanding of Ryan’s background. But a positive impression may not be enough to squeeze into hot deals – founders want to know specifically how an investor can help.
“When fundraising, founders sell equity for cash and support. It’s the investor’s responsibility to pitch a value prop that’s worth the cost. At Weekend Fund we communicate how we can be most helpful in product, community building, and GTM but focus on being specific in how we can help by offering suggestions that are most relevant to the business. We see ourselves as a pit crew, ready to support when needed. Doing so makes our “value add” more tangible than broad-sweeping claims. We also share our Founder Manual (also publicly linked on our site) that goes into more detail on our expertise, how we like to work with founders and how our LPs base of 350+ operator and founders can help. Our goal: to convince founders that X% of their equity is worth the ‘product’ we’re selling.”
— Ryan Hoover, Weekend Fund
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Until next time,
P.S. We’re hiring a part-time Analyst at Weekend Fund. Apply or forward to a friend. :)