Part of preparing to raise is getting a really good sense of your key potential targets.
For Niche Domains, Identify The VCs Who Have Made Their Career In the Space
There are a number of niche domains with particular dynamics: marketplaces, social networks, consumer finance, ed-tech, developer tools, hardware, energy, biotech, CPG, the gig economy, and so on.
For these domains, there are typically a set of 30-50 VCs who have made their careers in this domain, who all know each other.
The way to identify individual VCs to target is to look for successful exits in the space — prominent acquisitions, IPOs, current unicorns — and then look at the individual investor. Not just the fund — the person. You can usually figure this out by looking at the press releases around the acquisition, reading the S-1, search the firm and the company together, or just iterating through the partners on the firm’s portfolio page and looking at “Investments”.
If someone has invested in more than one prominent exit in your space, they should be top of the list, followed by those with one prominent exit. Then, look at VCs’ other, relevant investments — let’s say, a promising Series B company — and look at who co-invested with them. Finally, list other companies in the space and looking at who invested in them.
For Non-Niche Domains, Use Heterogenous Tactics And See What Works
For people building something a bit less specific — marketing analytics, say, or some other line-of-business SaaS product for a particular industry, a “targeting” approach may not be quite as good. There are lots of investors that go “generic” on purpose — ”I’ve just decided to stop trying to find new ideas and just keep investing in [the cloud].”
Options can include targeting based on relevance, trawling LinkedIn for 2nd-degree connections in the investing world, bugging your founder friends for recommendations and introductions, good cold emails with metrics, targeting principal-level folks who have the discretion to do seed deals but aren’t drowning in dealflow, getting into YC so you get served up investors on a plate at Demo Day, etc.
The best approach for you really depends on the quality of your network vs the quality of your metrics; how good you are selling in an email or deck vs in-person, etc.
It’s important to try to target different stages and tiers of funds; we’ll get into this more in the next part, but make sure you’re targeting different types of investors. Your approach may resonate with one stage or tier of investors but not another.
For example, if you don’t have success with Tier 1 firms, try Tier 2. If you don’t have success with seed funds, try pre-seed. And so on.
The reverse is also true: if you have lots of success with Tier 2 funds, try to get in the door at Tier 1 as well.
Use Angel Investors To Learn, Help, And Build Momentum
There are at least 10x more angels than VCs; angels have a higher hitrate and lower check size.
This means that angel investors likely aren’t going to close your round, but they are helpful for testing approaches, and making introductions, and can be hyper-targeted — eg you can get founders of similar companies or people from your target customer demographic to cut you checks and potentially help down the line.
A note on structure: My experience was raising a structured round from institutional investors. If you’re going through YC, and raising a couple million on a capped note after Demo Day — your experience will be a lot different; the advice here may apply more to your Series A than your seed.