The best business trip I’ve been on in over five years has left me grappling with how to compile my screeds of notes into a one-pager (well, maybe two or even three) that makes some sense! Oh my goodness – talk about gold! So much insight, so many gems!
Hosted by the Edmund Hillary Fellowship in conjunction with the Angel Association of New Zealand, I was part of a delegation to San Francisco of NZ companies looking to expand into the US market and/or raise capital there. Our group of ten included founders and investor directors of five very diverse companies, so the networking from that part alone was a great start. We were escorted around the city and the Valley by a couple of outstanding fellows, yes real ones – EHF Fellows, Josh Hannah and David Yuan. Over the course of two days we engaged with a number more Fellows or friends of Fellows – we even had lunch and a chat with EHF Founder and CEO Yoseph Alele, who happened to be visiting from Wellington. Dinner with Silicon Valley Bank was a bonus, but it was the real and honest experience and insights that we heard from Kiwi Founders, including Victoria Ransom, and a broad spectrum of VCs, that really have made an impact – and I’m still pinching myself as I re-read my scrawled notes that I was actually there!
First stop, Matrix Partners where we met Kiwi Founder of Predict HQ, Campbell Brown, who’d relocated his family from NZ to the US in order to test the hypothesis that he was onto something big, and that he could secure US venture capital. He checked out Seattle as a potentially easy landing spot, but ultimately the amount of capital in San Francisco made it a no-brainer.
Campbell is a guy who loves a challenge – he’s a go getter who claims to like a lot going on in his life all at once – yeah right, like moving countries, and growing a business with no local resources and raising money and adding a baby to the family – all at the same time!
Setting himself up in a co-working space, not really knowing anyone, Campbell networked like crazy with founders. He figured that those who had successfully raised capital would be the best connections to make warm introductions to potentially friendly VCs.
And for Predict HQ, Campbell’s hunch was right. On the back of securing Uber among other large enterprises as customers, the company secured US$10M in a Series A round late in 2018. Campbell said it was a warm introduction that landed him a meeting and ultimate VC investment.
From what he’s learned, Campbell says that US VCs are looking for the following attributes in their search for their next investment:
- A known entity, or at least an introduction from another founder
- Net new revenue
- Ability to expand the business – the best investors are looking for $100M potential and the ability to IPO from there
- Victoria Ransom puts this slightly differently as the need to have a huge nascent
market, and that you need to think global from day one with your go-to-market
- A solid team and culture
- US location, preferably San Francisco
So how did this founder-centric shortlist stack up as we met with VCs over the next couple of days? This quote fairly well sums it all up. “We are looking for a kick-ass team, building a kick-ass product in a large-ass market”. And in our final meeting at General Catalyst, Trevor Oelschig’s list of the big pitch mistakes is further confirmation.
The Series A No-No’s (aka the BIG pitch mistakes)
- Not being able to articulate your go to market motion
- Not being able to talk about your competitors
- Inability to attract the right talent at the right time
- Inability to articulate your path
- Not knowing your numbers cold
- Not having spoken to enough customers
And there was even more evidence to show that Campbell’s list is well, pretty much on the money!
A Known Entity
Ultimately it comes down to personal relationships and who knows who. Word of mouth, trust and the network are your friends. Good content will result in VCs following you and reaching out to you, unsolicited. When they’re doing research, investors love seeing logos out there as it shows traction and piques their interest. For GV (formerly Google Ventures), introductions to companies depend on their networks – many Googlers route companies in. Other VCs advised that we should be visiting San Francisco regularly for “pre-meetings” without any investment pressure, to build credibility and relevance – and importantly to build trust over time.
Net New Revenue
The ease with which you raise capital is directly related to the progress you’re making – not with product, but in the market with real customers. Companies need proof that they have (1) product market fit, (2) raving fans, aka referenceable customers, not a team that loves the product they built or are planning to build, and (3) a growing pipeline of real opportunities.
Ability to Expand the Business
Companies need to show repeatability to demonstrate that there is a big business to be built. It really matters what sort of traction you have and whether that’s increasing. One VC even went as far as to say that he finds it difficult to imagine a market that doesn’t exist yet – so we need to be sure that we are clear on the existing problem that we are solving for a proven and potentially massive number of customers. I loved Victoria’s comment about being able to be a salesperson and “make your company seem as big as you can, without crossing the line”.
A Solid Team and Culture
GV uses analytical input into their process, but Graham Spencer, Managing Partner, was hesitant to answer whether GV uses any sort of analytics tool to assess entrepreneurs! An experienced team, who have had prior exits and many years in the target industry reduces VC risk when assessing an opportunity. Transparency is important – and founders must be able to present real candour about the challenges they are going to face – confidence in knowing that there will be obstacles that are going to need support to work through. The ability to recruit and retain people is key, so it’s important to have a unique set of values and attributes that attracts people to your company.
Founders must be likeable – the humble kiwi attitude serves well. And making that first impression is everything – you don’t need to fly to meet in person but make those first few moments on the phone count.
US location, preferably San Francisco
Ramzi Ramsey at Softbank said it well – “US early stage VCs are lazy, and distance is a problem”. He went on to say that the investor’s greatest resource is time and if they are wanting to add value then the more cost/time it takes, that just leads to it being more effective to do it locally.
And there was more support among the VCs we met for a San Francisco location, with them saying things like – Every geography has lost mindshare to San Francisco, so being local is best. Ultimately the US is a giant market and to win there means you need to be there. The more specialized the market, the more important it is to be US-based. On the other hand, if you are building a consumer product for India, then perhaps the US is not so important. Generally, a C-corp in the US is the preference as it’s lower risk. If the company’s NZ-based, but prepared to flip to the US, relocating the founder/CEO and the sale team and leaving the R&D team in NZ, then that would be acceptable.
Some parting thoughts mixed with a bit of advice
So I’ll just say that I think the insight gained in our first tour engagement is pretty much spot-on when assessing what San Francisco VCs are looking for in their investments – known entities, with a solid team and culture, traction in a market with a massive opportunity, and preferably with the founder located or relocating to San Francisco. There are always exceptions, but I reckon that it’s likely much tougher going for those in the minority.
Kiwi founders need very big ambitions and to think global from the outset, then be open to making the move. They need a board that supports that, so be sure early investors are aligned with those ambitions. The brave ones who have gone before have proven and are still proving that San Francisco is where (most of) the action, and (most of) the capital, is.
VCs are generally looking for reasons to say “no” and 99% of interactions get that outcome. To stand out, in addition to getting to product market fit and building a meaningful customer base preferably in the US, founders need to be networked in, known in advance and publishing regular content. “Content is a honey-pot for VCs” – one said we’d be shocked at how much they read.
As a founder, be prepared to tell your personal story, in person, not in slides – “the authenticity of the moment you decided [to start your business] is very important. This is VC Candy”.
When at the point of taking on a VC, or any investor for that matter, ensure they have the same stomach for risk. In the words of Ling Wong, EHF Fellow and General Partner at Sealane, regarding risk appetite, “Past behavior is a great indicator of future behavior in that case. When things go bad, as they invariably will, then you want them to work through that with you.” So, be thorough in your VC due diligence before accepting capital into the company and know what sort of relationship you’re getting into.
Relationships are everything. Common sense really, but it is important to cultivate them, building interconnected and robust networks. These take time and effort to develop, but this is one of the most important things for a founder to be able to do. So, find ten founders that are one step ahead of where your company is at and engage with them. Their knowledge, insights and connections will help you to take that next leap – chances are each of them can introduce you to a whole bunch of VCs.
And finally, at yes, the end of page three – if anyone reading this has the opportunity to participate in a future delegation of this nature, I cannot recommend it highly enough. I’m guessing I won’t be allowed on the next one – but I’d certainly go again, given the chance. Thanks EHF and AANZ for a truly capital-ivating tour.
Words by Katherine Sandford