PS#031: How many first calls should you take?

Last week we covered how to build your leads funnel.

This week we are going to discuss how many of these leads should be converted into first calls. 

First calls are where the concept of time management really starts to play a role for a venture capitalist. It doesn’t take much time to review a lead, maybe 1-2 minutes, but moving to a first call is a more significant commitment. When we make this decision, we’ve signaled to the startup that we’ve increased our interest levels (which is hopefully true). In doing so, we’re creating a stepwise change in time commitment.

At a minimum, a first call is going to take ~30 minutes, which doesn’t include the preparation time or the post-call next steps. It also doesn’t account for the intense pace of taking on 10, 20, or even more of these in a given week. 

When you start doing the math, it adds up quickly.

To help, I’m going to walk you through some frameworks and metrics to help keep your deal flow funnel on track.

Baseline conversion metrics.

To start, let’s set a baseline. 

Most of the time, VCs are converting 20-30% of their leads to first calls. Said another way, VCs will take first calls with 20-30% of the identified leads. If we think about that with the numbers we highlighted in the last issue of Preferred Shares, that means for every 1,000 leads, we are moving 200-300 of them to first calls.

It’s a pretty high filter rate right from the start.

VCs can make this quick judgment call because of the clearly defined criteria outlined in the fund’s mandate.* Once you’ve internalized the fund’s mandate, you’ll be able to quickly identify the leads that should be moved to first calls. 

*If you’re interested in learning more about how fund’s build out their mandate, I talk about it in detail at the beginning of How to be a VC Associate.

Adjust based on your knowledge level.

Now, the 20-30% range outlined above is a generic baseline. The right conversion metric will depend on your understanding of a given space or investment opportunity.

When you’re new to a space or thesis, the conversion metric for your funnel will be higher. When you’ve really got a handle on a thesis, the conversion metric will be lower.

In the early stages, the conversion metric is higher because you’re still learning. You need to learn more about the problems, solutions, competition, business models, technology, sales cycles, etc. before you can make an informed decision. 

These first calls (paired with research and ecosystem conversations) will help you build a clear perspective on what will succeed as an investment in the space.

On the other hand, when you’ve done all this work, you don’t necessarily need to take as many calls. You can much more easily filter out companies that don’t fit your thesis when you have a clear vision for what you believe will succeed in the space.  

So, what does this mean in terms of conversion metrics?

In the early days of a thesis, you can see your conversion metrics drift to the 30-40% range after you've reached a statistically relevant sample size. It may be a bit higher depending on the complexity of the space, but this serves as a guideline.

For your more mature theses, they may fall into the 10-20% range. When I have a strong, developed view on a space, I’ll be converting about ~15% of those leads into first calls. I simply don’t need to take as many calls because I have a clearly defined thesis that I believe in (i.e., I know what I’m looking for).

Percentages will ultimately align to your understanding.

While these conversion metrics can give us a sense for the flow at the top of a deal funnel, what do they actually mean?

Ultimately, these percentages align with your understanding of a given space.

When you have a strong grasp of a thesis (because of all the work you’ve done), you’re able to make quicker judgments. When you don’t, you need to gather more information and have more calls. These metrics will help you rightsize the time you’re spending on a given thesis or investment area. 

For example, if you feel like you have a good sense of what you’re doing in a space, but are still converting 40% of the leads to first calls, you might want to make sure that’s the best use of your time.

On the contrary, if you’re in the early stages of developing a thesis and are only converting 10% of your leads into first calls, you might want to be taking more calls to drive more learning. 

None of this is gospel. It all depends. 

However, these guidelines will help you think more about your time management and prioritization as an investor.