Relationship Building with VCs

By Juan Linares

At Callais Capital we focus on funding entrepreneurs outside of the traditional venture capital marketplaces. For these founders, in particular, it is key to understand the importance of building relationships with venture capitalists early if they want to be as successful as possible in raising capital. With the industry sitting on large amounts of dry powder and entrepreneurs continuing to innovate, an investing environment still exists and will survive despite the current macro situation. Processes may take longer and the founder’s leverage may be curtailed somewhat, but, as well-noted, many great companies were started and funded during the last major economic disruption 12 years ago. For entrepreneurs seeking capital to finance growth, to test beta products or to fund development, there is still the opportunity to source VC investments or to start the key relationships that will facilitate funding at the right time for the company.

Plenty of recent commentary has centered around how the industry is going to change during and coming out of the current environment. Some trends were already starting to manifest themselves pre-Covid and now have been accelerated. For example, the cycle of illiquid investing was once again starting to turn away from less sustainable processes and valuations. However, certain aspects of early stage investing should always be foundational and will lead to greater return on investments, job creation, economic impact and innovation.

Give-and-Take Process

While uncertainty will continue for the short term, it is still important that founders and early stage investors engage in a give and take process as part of the funding cycle. Often there is a mindset that capital is truly fungible and that funding is a purely transactional process rather than a relationship building exercise.

Early stage investors that focus on Series A/Series B investing often have the benefit of some early KPIs  to diligence, but are still weighing the opportunity against a lot of future uncertainty. When a company only interacts with a VC when they are in a fundraising process, it is difficult for the investor to feel engaged in a true relationship building process and understand the company’s full story, achievements, challenges, and growth. Raising early stage capital is not like participating in a demo day – it is a more collaborative and ongoing process.

Engagement with VCs

With a multi-year investment window, venture capital groups have the ability to establish relationships with promising companies early in their growth phase and before they are ready to raise institutional capital. Companies should be looking for engaged VCs who provide clear metrics for what they are looking for, ask for analytics, and offer to provide guidance and serve as sounding boards.

It is now a lot more common to see early stage companies provide quarterly updates to existing investors and other interested parties. This is a recommended exercise for management teams and providing these to potential venture capital partners is a great first step. If a VC demonstrates interest and seems engaged, this is how the relationship building process begins.

The Mentor Bullpen

A lot of companies participate as part of accelerator programs, have existing angel and seed investors, have numerous official and unofficial mentors and may feel like they are all set with further guiding voices since they do actually have to run a company. However, early engagement is also an opportunity for the company to learn about an investor and how they would work as an ongoing partner upon investment. This is also an opportunity to ask questions regarding the VC fund to gauge fit and expectations and to get a reality check on the market. Often we see startups come to market with outsized rounds and aggressive valuation expectations which can lead to a lot of wasted time and effort in the fundraising process.

Most VCs are not looking to come in as the only opinion that matters, rather they are looking to engage in a give-and-take process and provide access to their experience and networks. If a VC is willing to offer this value-add at no cost, it indicates a legitimate interest in a potential investment and may provide the company with greater resources to execute and to hit the tangible growth metrics that enable that investment.

There are myriad ways to meet and cultivate relationships with the right VCs and this little investment of your time well in advance of a capital raise can materially help you when you are ready to take on capital for scaling.