Good advice for those who want to reach global VCs (e clique aqui caso você queira ler esse texto em português)
As the poet John Donne said, “no man is an island”. This is also true for startups: one who wants to build a truly big business needs to have a lot of good people around. And if that’s a founder mantra when talking about talents, it also should be regarding investors, who will help businesses to thrive not only with money, but also advice, connections and knowledge. In Brazil, the venture capital industry has been growing for the past few years, but we are used to saying that it’s still in its first days.
So, looking abroad for fundraising opportunities is not only necessary, but desirable: global investors can help entrepreneurs to have a vision of the whole, with learnings from previous experiences. And the timing is also great: either Brazil and Latam never have attracted so much attention from VCs like now. Getting prepared for that is something that can make a difference.
Some weeks ago, we had a special Canary Talks here at the firm with QED Investors, one of the most important fintech investors on the planet. In a very informative (and good-humoured) chat, Bill Cilluffo, Lauren Morton andAna Cristina Gadala-Maria shared advice and thoughts with founders who want to fundraise abroad.
Unlike other VCs, QED is no newcomer at Latam: they already made checks for well-succeeded companies, like Nubank, Creditas, Loft and Hash (these last two, also invested by Canary). For Bill, one of the most interesting aspects at Latin America is the creation of what he called “platform companies”.
“This is something we don’t see in the US: here in Latam, there’s a notable ability in the creation of giant platform businesses, able to solve the problems of a whole value chain. In the US, we see companies focusing their attention to solve only one part of the chain. Here, that’s not the same: companies are trying to solve it all, at once. I asked one founder why that is so. He told me that solving just one part of the problem would not be enough, because the process would still suck. It was necessary to solve it all.”
As a matter of fact, it’s great advice for someone who’d like to start a business in Latam: it’s necessary not only to solve a problem, but to think about the size that this possible company could have when solving this problem. This is something that will not only influence the entrepreneur’s journey, but also determine how investors see the startup. Also, it’s good to remember that the fundraising game is becoming more and more global; smart ideas are emerging in different places, but, nevertheless, time and attention are still finite.
Here goes five precious tips from the Canary-QED talk.
#1: Make dialogues, not presentations
This is a good and old metaphor, but still valid: signing a term sheet is like commiting to a long-term marriage. A check is not the end, but the beginning of a compromise that will last for a lot of years. Just like in relationships, the investment process also obeys to certain rituals — and one of the most important is connected in how you present yourself to others. Lauren has stated that well:
“A common mistake we often see happens when founders use all their time in a fundraising call running through a presentation. Using the time just describing a pitch deck is one of the less effective ways to meet a team. We like to talk, to create a dialogue, to understand what we know and what we don’t about the problem… and why that solution stands out.”
Just like a first date, a call with an investor needs to be a two-way conversation: you need to talk about yourself, but also meet who’s at the other end of the table. Remember that it is not only the investor that picks a founder, but vice-versa — a mantra that has been repeated a lot out of Brazil, but needs to be considered valid here too.
That said, it’s not good to leave your pitch deck behind. It is a very useful tool to introduce your company. And, to insist on the metaphor: just like blind dates, doing a meeting without previous information might not help in a great outcome. “Having early access for a company deck is great, so we can have a more structured conversation”, said Lauren.
Time management is also a skill, as Ana Cristina pointed out. “Founders need to know how to use their time well. If a call is going to have, let’s say, 45 minutes, you should spend 30 minutes on the presentation, with space for interaction. And another 15 minutes for open conversation, with questions from both sides. Time is necessary to create an organic conversation, it’s a fine balance.”
#2: Create a relationship before fundraising
Rome wasn’t built in a day. There’s a lot of chance that your relationship with a VC fund also won’t — at least not to the point of getting a check very fast. To captivate good investors, you need time and dedication, strengthening your ties with the course of time. “It is important to build a relationship previously, maybe six months before you want to fundraise. Doing it right at fundraising… is a tough place to start.” Makes sense: compromise means trust, and that does not necessarily happen in a minute.
Another mantra that we hear a lot in VC is “always fundraising”. There’s not a specific time to start it: the job of a good founder is to always have some time in his schedule to talk with possible investors, people that might help him over the journey. That not only builds trust, but also helps founders to understand what kind of help they can expect from each fund. Good fundraisers are used to plan one or two rounds ahead: while they are closing a Series A, they are also making contacts for their potential partners in Series B or C.
For the VC funds, it’s OK to start early. “There’s not a wrong moment to talk with an investor: from our side, we always want to know about ideas to invest. Our structure permits us to invest in different stages. We are OK with talking sporadically, at least once every six months”, said Bill. Of course, you have to bear in mind that not always a startup will be in its best time to talk; it is good to choose wisely when you are going to use your opportunities. And of course, managing your time also requires a fine tuning. “If you spend all your time with investors, you’re not going to build a business. Balance is necessary”, restated Bill.
#3: Show your reality
In Brazil, it’s very common to have only local investors at the first institutional rounds. The proximity is not only geographical, but also cultural: the founder is presenting a solution to a problem that is palpable for who is signing the check. However, when a founder starts to raise bigger and bigger rounds, he needs to talk with VCs that are not used to the pains of living in a specific city, country or region. Being able to avoid the Tower of Babel and speaking a common language is something very important.
“You have to create different pitches for different investors”, said Bill. “Local firms have day by day knowledge, we don’t. Sometimes, you need to educate your investors on something that’s a problem where you live, but it’s something trivial in the US”, added Lauren. But you also need to be careful to under or overestimate your audience.
In some cases, presenting yourself as a spokesperson for the region is also a great tool, pointing out challenges and notable developments for the ecosystem. “In some of the first meetings, we talk more about countries and contexts, less about companies”, said Bill. That’s especially important for companies that deal with harder subjects, like regulated sectors.
For global VCs, having heavyweight local funds in the captable can also reduce some of the insecurities. “When we do not know a sector very well, we like to be close with trusted local partners”, said Bill. Beyond that, he also added that the way companies deal with regulation is also that is always being evaluated during a pitch. “It’s good to have frank conversations, but it is also important to understand how the CEO sees regulation, if they matter for the company or if they just want to explode everything.”
#4: A pass is not a game over
Ok, the founder has followed the tips above, made a good impression with the investors, built up a relationship… but his company has been passed. What does it mean?
For QED, a pass is not a game over. According to Bill, it is very common that the fund passes some companies and, later on, invests in them. “We are passing companies all the time, but it is good to remember that this is not a one-shot-only game”, he said. Ana Cristina adds, considering that a founder should not have fear of being rejected.
“You should not be afraid of being passed. Sometimes, it is just a step. A pass might sign that we are looking at the business, but the timing for investing is not right yet. We like to see the progress of a company, know an entrepreneur better, build a relationship with them.”
#5: Diligence the partner… and the firm!
Like many things in the VC universe, the process of fundraising is very relational. As a matter of fact, you are bringing new people inside your organization and it is very important that the goals are aligned — something that may be crucial in delicate moments, like new releases, a M&A offer or even the support in the middle of a crisis. The QED partners gave the founders two important tips here. The first is a classic one: it’s good to remember that the founder also chooses the investors, in a two-way relationship.
“A lot of the first discussions we do end up in understanding how we can help a company. And every fund has a speciality. There are some that are great at helping in the construction of the pitch deck, others have a lot of local knowledge or connections with talent. A good conversation with a VC should explore what kind of help they can offer and also, if you feel good interacting with them”, said Lauren.
The other one regards the dynamics that a lot of founders create with their investors, looking more for a person and less for the firms. Sometimes, a decision to go along with a VC fund is taken specifically because of a partner, but “nothing guarantees that they will be there forever”, as Bill highlighted.
“An investment is a decision of eight, ten years, and is not just a matter of money. A good founder should due diligence not only the partner that is closing the deal, but also the firm. That matters: even if the partner goes away, the firm will stay at the cap table — and one of the worst things that can happen is ending up with someone that does not know exactly what you do, giving bad advice on your operation. Diligence the firm, not only the partner!”
With all these tips in mind, we hope you have understood how to make your fundraising process better and better. But it is good to remember: despite big news, social media and even internal comms may say, fundraising is not an end in itself, but just the middle of the process. As Ben Kaufmann, Camp’s CEO, once said: “Congratulating an entrepreneur for raising money is like congratulating a chef for buying the ingredients”. You just might get sure to get the best ingredients.
If this article is the first time you hear about Canary, let us spend this last minutes introducing ourselves: we are a Brazilian VC firm, partner of choice of the best founders, who are shaping the Brazilian economy. You can learn more about what we do at our website and our LinkedIn page. And if you speak Portuguese, you should also check out our podcast. Come fly with us.
