The coffee meeting
Vetting investors, deciding what information to share, making requests to measure interest, and demonstrating progress
In our last chapter, we talked about why it makes sense to spend time with investors ahead of your fundraise. Here, we’ll talk about how to do that well. For lack of a better term, we’ll call these “coffee meeting,” though you may not drink coffee, and they may happen over zoom.
Remember, these meetings are not formal pitches. They are 30 minute coffees where you ask investors questions to determine (1) do you want to work with them, (2) what parts of your story are most exciting to them, and (3) do they want to work with you.
Do you want to work with them?
Coffee meetings are meant to be conversations. You know, and the investor knows, and the investor knows that you know that this isn’t really a casual hang between friends. It is low intensity fundraising, but it is an opportunity where you don’t have to worry about a deck and where you can focus on asking the investor questions.
You’ll want to prepare these questions ahead of time. Do some research on the person you’re sitting down with and talk to them about other companies they’ve invested in, what they think is interesting, what sort of deals they’re seeing and what opportunities are cool. Ask them human questions as well - things that aren’t about business. After all, the goal is to decide if you could work with this person for a decade+ as a board member.
Share just the right amount of information to get investors excited
During these meetings, investors will do their best to learn everything about your company - that’s their job. However, you don’t want them to know everything, so you need to hold back more than you give. This can be awkward, but a useful rule of thumb is that you should share enough information to make investors more curious, but not enough that they can make a final judgment call. If they are intrigued and want to keep learning, they will keep working for you and investing in the relationship. If they get to a decision by themselves, they will either say no - in which case you’ve lost the lead; or, they’ll push you into a process/make an offer - for which you might not be prepared.
Digging in on that theme: it’s mostly fine to share high level metrics that make you look good - such as revenue and growth - but avoid sharing information that is multiple levels below that. For instance, you wouldn’t go into details about cohort retention or dissect your full sales process. You’re also going to want to avoid sharing anything proprietary. Proprietary information is defined by anything a competitor could use to beat you. You should act as if any information you give investors will become public.
When an investor asks you a question you don’t want to answer, you can say “Totally get why you want to know that, but we’re not sharing that information publicly. Happy to discuss it when we kick off a raise.” This will work most of the time, but some investors will ask again, to which you can give the same response. Some investors will go one step further and stare at you silently, hoping to break your resolve with sheer awkwardness. Be strong, and always have a set of questions you want to ask so that you can turn the conversation back to the VC. These are coffee chats - so ask lots of questions.
Your goal throughout is to tell the story of your company in a way that excites the investor. Metrics are a way to back up the things that you are saying and create differentiation for you against the market. This is also an opportunity for you to try out different versions of your story, of customer anecdotes, of your plans to see which resonate best with investors. See what gets a good reaction, refine it, and then file it away for your pitch.
Figuring out if the investor wants to work with you
Good investors are both naturally optimistic and good at feigning enthusiasm. They are also skeptical. During coffee meetings, you need to figure out who is genuinely enthusiastic about your business and would move quickly in a fundraising process.
A good way to do this is to ask investors for something of value to you that requires effort on their part, i.e., something they can’t do on their phone in the meeting. This could be an introduction to a specific customer they have in their network or a referral to a job candidate.
By making these requests you get two things. First, the speed with which the investor does what you ask is a great way to measure true interest. On top of speed, you’re looking for an investor willing to spend political capital on your behalf. The more capital spent, the more interest there is. Second, these requests are a great way to derive value from investor conversations beyond just building the relationship. I saw one founder land $5 million in ARR from investors who did not actually lead his A. It feels awkward to ask for things from people in a casual setting. But, this is a business interaction and not dating, so don’t be afraid to make an ask. If the investor is excited about your business, they’ll do the thing.
Attempt to predict the future of your startup
Any individual meeting you do with an investor establishes a single data point in their brains. The final clever thing you can do in these meetings is to signpost your startup’s future progress. There’s a trick here - your prediction needs to be something that seems ambitious while also being something you know you can outperform. If you do this a few times - and use your outperformance as a reason to have another coffee meeting with the investor - they’ll realize that outperforming aggressive goals is just part of your nature. Founders who do that generally create huge companies, which is exactly the kind of company VCs like best.
Of course, the opposite is true. If you consistently overpromise and under-deliver, you will create the impression that you are not a great founder building a big company. As with everything else in your business, there’s risk in doing these meetings. Your goal is to manage that risk wisely.
Think long term
Your lead investors at the A and B will each own 15%+ of your company and sit on your board. That’s a big decision on your side and theirs. These pre-pitch coffees are your chance to get to know your partner as a person and build a relationship outside of the high pressure dynamic of a formal process. It’s also a chance to figure out what the extent of your partner’s decision-making ability is, and who actually makes the fund/no-fund decision at the firm. Take the time to learn about them now, not after the deal is done.
__
Disclosure:
This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Unless otherwise stated, all views or opinions herein are solely those of the author, and thus any view, comments, or outlook expressed in this communication may differ substantially from any similar material issued by other persons or entities. This communication is not an offer to buy or sell, or a solicitation of any offer to buy or sell any financial instrument, product, or service. The information contained in this communication is based on generally available information and although obtained from sources believed to be reliable, its accuracy and completeness cannot be assured and such information may be incomplete or condensed. The information in this communication does not constitute tax, financial, or legal advice. The reader should obtain advice based on their own individual circumstances from their own tax, financial or legal advisor.
Securities are offered through Finalis Securities LLC, member FINRA/SIPC. Magid and Company and Finalis Securities LLC are separate unaffiliated entities.