Once you have a series A funding plan and strategy, the first step of the process, the introduction to an investor, the second step the first meeting and follow up, now its step 3 is to present to the partnership.
Most times this step is hard to get to. Getting to this step means the key partner who is “sponsoring your startup” believes in it enough to get your company in front of the other partners. Most investor firms have 3-5 partners who (should) have the same # of companies they fund and same amount of funds to deploy. So if the fund is $500 Million and has 5 partners, then each person has to deploy $100 Million to get best returns. The partner sponsoring your company has to convince other partners why he’e excited about investing in your company.
In the US I have been asked to present to the entire partnership 2 times (they will then discuss it between closed doors among themselves), but in India, the way it works is that the partner presents your case to her partnership. So, instead of you telling the story about your company, you have to arm the partner with the best story so she can convince others in the partnership. Other partners can say no, but that’s rare is my experience. Usually your champion has been sharing details about your company with others early in the cycle so they are typically aware of the company, and now are trying to look at the deal in its entirety and look for any last minute reasons to say no.
One of the most important parts (besides following up and providing frequent progress udpdates – weekly) of the process is the type and kind of questions you ask of the investor.
Smart questions and they realize you are trying to evaluate them as much as they are you. No questions and they will think you are a novice.
Here are a few questions to consider, which you can tailor to your situation:
1. How much time do you spend with portfolio companies and how often? Will give you a sense of their involvement. Some investors like to invest and only attend board meetings, whereas others will also provide valuable advice and connections.
2. What are the biggest challenges to scaling our company that you foresee? Will let you know their thinking around amount of money they think you will need eventually.
3. Which of your portfolio company CEO’s can I talk to, so I can learn from their experience? Make sure you also speak to other portfolio companies who they dont mention, so you get a well rounded perspective.
4. Will you be able to lead our round, or will you expect me to find a lead investor? Most firms will lead your round if they are excited, but some seem to prefer to co-invest and let others take the lead. If the firm you are talking to does not lead, then you will have to spend a lot of time trying to get another lead investor.
5. How long will it take from the time your partnership says yes to the time of finishing the paperwork and completing the money transfer? They will mention “on average it take X weeks / months” which will give you a sense of the negotiation process you have to endure.
Typically the partner meetings are on Monday, so if you hear back on Monday or Tuesday all’s good. Later than that means, there are typically more questions that came up, so you things might go sideways for some time.
What might go wrong and how to fix it?
1. Your investors “goes cold” on you after they present to the partnership (happens more often that I’d like). Remember that admin you started building a relationship with in step 1? Leverage her to find a time to speak to your investor – either when she’s on the way to the airport someday or in between meetings.
2. Your investor “needs more time” since they have some concerns. Get the list of specific concerns. Not generic stuff like “we dont like the market”, since nothing’s changed in the market since they started talking to you (assuming its not long). Try and see if those concerns are valid and addressable. If they are not, cut your losses, move on. Keep them informed or progress via a monthly email update, but realize trying to engage again is going to suck up a lot of your time for an unknown outcome.
3. Investor needs “more data“. Understand what data they need and which parts of it falls into the “due diligence” and which parts of it are truly needed to make a decision to offer a term sheet.
4. Investor does not say a firm yes or firm no. This is the biggest problem. Most Indian investors are fairly straightforward and will give you a quick 2 week (from start to finish) no. But the yes might take longer. The trouble is the quicker you push, the more likely you’ll get a no. US investors for most part (institutional) have a hard time saying no. Usually their “yes, but” means not yet. My suggestion is to focus on building your product during this time and get enough other work going on to ensure you dont keep waiting for the phone call from the investor.
Stay tuned for the final 2 steps.