How many VCs should I be talking to simultaneously when fund raising?

QUESTION:

I’ve heard it’s good to get lots of VCs interested so you can get a bidding war going.  How many VCs should I be talking to simultaneously?  Ten?  Twenty?

ANSWER:

Naomi Kokubo

by Naomi Kokubo, Cofounder of Founders Space

If you’re at the point where your business is growing rapidly and you want to approach venture firms, I recommend doing it in stages.   Start off by approaching five VCs.  Before approaching them, do your homework.  Make sure they aren’t already invested in direct competitors and are interested in investing in your sector.   There’s no point in approaching a VC firm focused on bio tech when you’re a Web 2.0 startup.

The reason I like to start off with a smaller number of VCs is that you can learn a lot while pitching.  If you listen carefully, you’ll find the feedback VCs provide you invaluable.  They’ll tell you exactly why they can’t or won’t invest.   If you ask a lot of questions, which I encourage you to do, you can learn a lot about your business.

I can’t stress this enough.  It’s essential for you to view your business plan as a living document that is constantly evolving.  By iterating on your presentation and your responses to the difficult questions, over time you’ll discover what works and what doesn’t.

This is critical because if you approach too many VCs at once, you won’t have the time to think through their feedback and craft an approach that addresses their concerns.  You’ll simply be running from one meeting to the next, reacting to what’s thrown at you but not developing a clear strategy on how to position your business.

As a rule of thumb, I’d keep five to eight VCs engaged at a time.  That’s about the right number to juggle while running your business and revising your plan and pitch.  When one drops off, add another.  That’s what has worked for us in the past.

I hope this helps!