I’m just spitballing an idea based on a problem I have observed.
Within the VC industry, partners, associates, and other members of a firm get dozens if not hundreds of inbound company decks every week. Some are referred to them, some are cold emails, some are too early, and some are too late. Statistics show that nearly none of these companies end up getting funding.
If the initial offering is denied by the VC, the best that founders can hope for is that the VC that received the inbound message will forward over the initial email to one of their investor connections, and this investor will then decide on whether or not to screen the company in question. This process requires the initial VC to spend time thinking about who to pass to, drafting up an introduction email, and all for no cut. Thus, it is much more likely that the inbound request will die once the initial investor target loses interest.
Venture capitalists generally stay away from cold messages as it is a negative signal. By not having someone in their personal network to offer a warm introduction, a founder is signaling how small the size of his network is. For an industry that prioritizes growth over every other metric, a small network signals future troubles in business development and scaling and is enough reason to pass on an investment.
Outside of the strength of their business, startups founders are at the mercy of two factors when raising funds. With the founders’ personal network size being the first, founders also must hope that the VC initially contacted is willing to spend time forwarding and introducing the company to one of his or her connections. As discussed before, the VC has no real incentive to spend time towards something that will yield him or her no tangible gain, and therefore has little reason to pass along the deal.
Realistically, most inbound deals fall flat either way, but there could be a better way to connect companies to the right investor given their needs and stage.
We organize all our venture contacts into a Google Sheet that includes their investment criteria and typical check size. As our number of contacts has grown, we have become constrained by our memory, and if we do decide to pass along inbound messages, we do not always redirect them to all of the right people.
If there were a better way to organize deal flow between VC firms, it would immediately add value by cutting down on administrative work by creating a more tailored pipeline to meet investor-specific needs. This would also be advantageous to company founders as their inbound messages would adopt a greater likelihood of reaching the right strategic partner for funding. In an industry in which the overwhelming majority of companies fail, anything that can be done to increase the odds of success has a clear value proposition.
Again, I am just spitballing solutions to this problem, but if this solution were to be developed it would act as a mutually beneficial service to both sides of the table.