Think Like a VC: How Understanding the VC Mindset Can Maximize Your Own Fundraising Success
Uncover how a VC's incentives and daily routine drive their actions -- and how entrepreneurs can use this to nail their fundraising process.
When I first heard about venture capital 20 years ago, I imagined it as the perfect job—sitting in a chair, predicting the next big thing, and helping to shape industries by backing game-changing technologies. The idea of anointing “kingmakers” and having others vying for your help and attention seemed both exciting and impactful.
In reality, venture capital is much more nuanced. Entrepreneurs must understand the daily dynamics that shape a VC’s decisions in order to properly navigate the fundraising process and maximize their chances of success. Here’s how gaining insight into a VC’s priorities and mindset can give you an advantage:
1) The VC Volume Game: “A Mile Wide, an Inch Deep”
Entrepreneurs dive deep into their industries, developing a thorough understanding of their niche. They become experts, spending years refining their knowledge. VCs, however, must evaluate a wide range of startups, taking a “mile-wide, inch-deep” approach.
This isn’t a criticism of either role—it’s simply the nature of the job. VCs need to evaluate multiple industries and hundreds of companies each year. Statistically, something like 1 in 10,000 startups will become incredibly successful, which means VCs need to meet many companies to find those outlier startups.
On average, VCs evaluate between 500 and 1,000 startups annually; that’s three to five pitches a day. A VC will hear five 30-minute pitches in just a matter of hours, each about a completely different product or industry—one about a robotic lawnmower, another about a cybersecurity product, and another about a new app. This requires frequent context-switching, making it challenging to remember every detail about each company.
What This Means For Entrepreneurs
Given this high volume, it’s imperative to help VCs recall your pitch by providing context. Upon each and every interaction with a VC (by email or in person), try saying something like: “To refresh your memory, we met on Monday and discussed my company, which focuses on X,Y, and Z.”
This helps VCs quickly re-engage with your pitch, even if they’ve heard dozens of others in the intervening days/weeks. While it SHOULDN’T be up to you to remind them, it will only improve your chances of successful fundraising by doing so.
2) Long Feedback Loops: The Need for Irrefutable Signals
Another unique aspect of VC life is the long feedback loop. Unlike other industries, it can take years before the true success of a startup becomes clear. It might take 5-7 years before a startup reaches significant revenue or achieves a successful exit. In that time, VCs have limited feedback on whether they’ve made the right investment – all while their fellow partners/teammates at their VC firm put pressure on them to ensure they are making the best possible investments.
The few signals that do exist—such as a portfolio company securing subsequent follow-on funding or making high-profile hires —help, but they don’t guarantee success. The strongest signal for a VC comes from a successful financial exit, such as the startup going public or being acquired. Along the way, one of the more reliable signals is customer traction—whether new customers, increasing customer spend and product usage, or securing high-profile customers).
What This Means For Entrepreneurs:
Understanding this long feedback loop can help you craft a more compelling pitch. VCs look for data points that validate their investment, especially in the early stages. Highlight customer feedback/love for your product, your team’s credibility and expertise in this domain, and the earned insights you’ve gained in your sector.
For early-stage startups, VCs must rely on proxy signals, such as the caliber of talent you’ve attracted to your team, the thoughtfulness of your live or planned product, and initial reactions from prospective customers. All of this helps shorten the feedback loop for VCs and reassures them that they’re investing in a promising company.
Summary: It’s not your fault, but it is your problem
By recognizing that VCs are constantly switching between industries and facing long feedback loops, entrepreneurs can align their pitches with what VCs prioritize. Offering the right context and signaling your potential through irrefutable data will increase your chances of standing out and securing the investment your startup needs.
The more you understand and embrace the quirky dynamics that shape a VC’s decision-making process, the better positioned you’ll be as an entrepreneur navigating the fundraising game.
Ubiquity Ventures — led by Sunil Nagaraj — is a seed-stage venture capital firm focused on startups solving real-world physical problems with "software beyond the screen", often using smart hardware or machine learning.
If your startup fits this description, fill out the 60-second Ubiquity pitch form and you’ll hear back within 24 hours.