When Raising Venture Capital Look for an Emotional Tie to Seal the Deal

Stanford men in blazers

Experience has shown that a strong emotional tie to a deal will help more than any other factor when raising venture funding.

Entrepreneurs spend a lot of time and effort tracking performance, measuring sales traction and predicting growth in an effort to win over outside investors. However, it is the emotional bond an entrepreneur cultivates with their potential investor that helps close a deal.

Ask any venture firm or accelerator which investments get done in their shop and they will tell you the deals that come through their personal network. At Kline Hawkes & Co, the venture firm where I worked for 14 years, the “personal relationship” deals comprised approximately 90% of the entire portfolio. In fact, at most shops it is only the relationship deals that get properly vetted. This highlights how crucial it is for you to work your own network when approaching an investor.

Just because you do not personally know any of the partners at a fund does not prevent you from accessing their extended network. Most partners have enormous pools of advisors, mentors and friends anyone of which can make an introduction on your behalf.

A warm introduction will give you immediate credibility in the investor’s eyes but the entrepreneur will still have to work to forge a direct emotional tie. What forges this bond between the entrepreneur and investor can vary: typically, the connection will stem from something the investor and entrepreneur shares whether that be the same college or fraternity, a love of mountain climbing or surfing, children who attend the same school or ballet class or similar career paths. All these factors can be the catalyst that forges a deeper understanding and mutual respect between the two prospective parties.

sp_patrollers

I once had an investor call me in regards to a background check on a start-up he was looking to back. I was very familiar with the company having advised and worked as a consultant for the founder for a number of years. While the founder was extremely competent across a number of disciplines he had confided in me that he would like to identify a capable CEO who could take care of the day to day operations so that he could focus on building out his SaaS platform and manage his team of engineers. Having worked closely with the founder I was in total agreement and felt the sooner he could bring on a seasoned leader the better it would be for the entire business.

While not wanting to dampen the VC’s enthusiasm for investing in the start-up, I did suggest that some of the investment capital should be used to build out the management team and bring in a seasoned leader. The VC did not see the necessity of such a move. In fact he was keen to keep the founder in charge of the business. I found this a little odd until I remembered the VC was an engineer earlier in his career. The VC could picture himself running such a business some day in the future.

In this situation the bond between the VC and the founder was their career paths which became the catalyst for a speedy and successful investment. Eventually a CEO was brought in, but not until the founder began building out his next big idea.

Elvis Festival

When approaching investors it is important for an entrepreneur to make the effort to learn as much about the person sitting across the table from them as they can. An entrepreneur should not approach a pitch as though it is an interrogation. They will earn little credit by divulging everything about their company in as short a time as possible. This approach is likely to cause more harm than good and will make an entrepreneur come across as too eager and transparent to win the VC’s respect.

 Dog and Owner

A founder should ask probing questions whenever possible and make reference to milestones or achievements in a VC’s careers. Knowledge about the investor’s family can go a long way as can an interest in the books they read and the hobbies they pursue. When making these references don’t be afraid to probe further to share and exchange stories about the things in life that you both are passionate about. The chances are, if you share their passions, you can convince them you have the right stuff to build a successful business, just like them.

Leave a comment