There Are Only Two Types of VCs - Here's How to Identify Them
Getting to "yes" starts with knowing which of these 2 types of venture capitalists you're speaking with.
As an entrepreneur-turned-VC, I have been working with other VC investors for almost 15 years. Whether they’re one of many partners at a large VC firm or the sole managing partner with a substantial extended team like myself, I’ve come to realize that all investors fall cleanly into one of two (never both!) categories: product investors and metrics investors.
Neither type of investor is better than the other, but it’s important for founders to be able to identify which type you’re pitching to or engaging with so you can communicate your product most effectively.
In my experience, one simple rule separates these two types of investors: when they first hear about a new startup, they either ask (1) What does the startup do or (2) How is the startup doing?
Investor Type 1 asks “What does the startup do?” - Product Investors
When a product investor like myself hears about a startup, they’ll immediately want to know more about the company’s product and its value proposition. They’ll be interested in hearing more about:
How does the product work?
What are its features?
How will customers be better off after using the product?
What does the short and long-term product roadmap look like?
Product investors want to understand why the product makes sense and the reason the founder started the business. While metrics like the number of users or your current/future revenue have a place in their decision, you will make their eyes glaze over by jumping to numbers too soon. First, be sure to establish a clear understanding of the function and value of the product (this could even occupy your entire first meeting).
Investor Type 2 asks “How is the startup doing?” - Metrics Investors
When a metrics investor hears about a new startup, they’ll want to know all about the business metrics and how the company is progressing. They’ll be interested in hearing more about:
How much in ARR (annual recurring revenue) is the company doing?
What is the churn rate?
What is the NRR (net revenue retention, which reflects how well your paying customers stick with you and expand)?
Who are the other investors in the company?
The metrics investor’s goal is to gather metrics and assimilate them into their pre-existing framework or compare them to their rules of thumb. This focus on metrics is such that many VC firms even have a “good/better/best” metrics worksheet that they fill in with each company’s metrics to determine how attractive it is.
How to determine which type you’re talking to
For founders, any conversation with a VC is a sales conversation, and it’s important to determine what kind of investor you’re speaking with. You don’t want to bluntly ask them what type of investor they are; instead, you can politely ask:
“Can we spend a minute on the last investment you made and when it really clicked for you?” If their answer is “the amazing growth”, you’ll know you’re speaking with a metrics investor, and if their answer is about the product or features, you’ll know you’re speaking with a product investor.
“Would you like to begin with a detailed look into my product and its features or start off with my business progress and operating metrics?” You’ll end up covering both, but the goal is to elicit a reaction from the investor to determine their priority.
Once you’ve identified the type of investor you’re engaging with, you can tailor your pitch or conversation to their specific interests. Each will have different lead-ins and contextual introductions, and you can even jump ahead in your pitch deck to one section or the other based on the investor type:
Product investor: Consider taking on the persona of a customer and communicating the product in the context of the customer’s journey and pain points.
Metrics investor: Share your target metrics - such as your target revenue and the extent to which you’ve achieved that - before diving into a list of your business metrics.
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.
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