When the pandemic first halted travel and in-person meetings, many speculated how the venture capital industry would respond. While deals have been historically tied to face-to-face meetings, the industry quickly adapted. By the third quarter of last year, U.S. VC fundraising set new records, and U.S. IPOs raised over $58 billion from 152 companies.
At the same time, it became clear that the pace of dealmaking, which used to be a long, structured in-person process, had changed. Now, it involves a constant flow of virtual interaction, information and communication. As a result, investors may be able to come to an investment decision in a matter of weeks, not months.
Entrepreneurs may be wondering how to keep up with the new pace and stand out in this new remote and digital-first environment. Here are four tips, which are acutely important for early-stage entrepreneurs, from an investor who has been actively looking for and closing deals during the pandemic.
1. Proactively reach out even when not looking to raise
Almost a year into the pandemic, it’s clear investors have still employed a targeted investment strategy and evaluate sending any outbounds against this. However, at the end of the day, investors want to increase and maintain deal flow. If entrepreneurs want to connect with new investors, they should proactively reach out — even if they’re not currently and actively looking for financing. As deal timelines shorten, it becomes more important to start building a relationship with your potential investor. Even better, when you do catch up with them, try to “put them to work” and bring up ways they can help. This will help you evaluate whether or not it’s an investor you want to work with.
Rapport and trust should outweigh initial reactions to valuations or term sheets.
2. Connect in real time
After exchanging contact details, consider using instantaneous, remote communication, like a call, text, or ping. This is especially important when connecting with current investors. A quick ping is often faster and more convenient than sending multiple emails.
At DCM, we’ve always communicated with our Asia-based portfolio companies and investment team members via WeChat. I anticipate more U.S.-based investors and entrepreneurs will communicate via real-time methods.
That being said, all real-time communication shouldn’t fall to entrepreneurs alone; the onus is also on us as investors to connect with entrepreneurs, too.
3. Share company updates often to build name recognition
It may seem challenging to build meaningful investor relationships when the pace of communication and dealmaking is faster. While these tools can help build rapport and address quick questions, email is still an excellent vehicle for written investor updates. These updates should include wins, what entrepreneurs need help with, company goals and what’s on the horizon. Share these often — I recommend quarterly — so investors can see and track cadence. You can sanitize them for anything sensitive, but they’re useful for staying top of mind.
Sharing these updates also allows current investors to offer support, and potential investors to familiarize themselves with the company. In either case, investor updates establish name recognition, trajectory, and vision.
4. Stay patient with capital
When it comes to raising, I advise entrepreneurs to stay patient with capital. This means entrepreneurs should focus on using their capital to perfect their business, team, product and growth channels for long-term success instead of burning fast while trying to fly fast. This patient capital philosophy is something I saw employed by Bill.com firsthand.
While this may seem obvious, the pandemic has shown how important it is for businesses to have a financial safety net; this is no different for startups, whether they’re at seed-stage or a unicorn. Startup safety nets vary, but it’s best practice to have the ability to extend the runway for at least 12 months. Doing so will ensure the pathway to creating a capital-efficient company is not just a line on an investor deck but is thoroughly implemented and rings true on financial statements.
Dealmaking beyond the pandemic
Recent stock prices and the number of filings may suggest the re-emergence of a U.S. bull market, but it’s no secret the market is unpredictable. Stocks can plummet or soar in response to political events, business happenings, or extreme consumer demands. Although investors will be tracking these trends and monetary policy, entrepreneurs should always stay frugal, accounting for market flux and potentially more unpredictable times ahead. In the near-term, low-interest rates tend to lead to higher asset prices, but no one can predict the long-term implications of monetary policy coupled with what our recovery will look like.
David Cheng is a principal at DCM, an early-stage global venture capital firm with over $4.2 billion under management and offices in Silicon Valley, Beijing and Tokyo. His investment areas are consumer internet, fintech, mobile apps and SaaS, and some of his portfolio companies include LARQ, maker of the self-cleaning water bottle; financial wellness company Brigit; and intelligent bill payment platform Bill.com.
