PS#035: The 4 Outcomes of a First Call

Over the past ​two issues​, I discussed how to prepare for first calls.

Now, I’d like to share a framework I use to make sure I am properly moving these first calls through my ​deal funnel​.

As we discussed previously, investors need to be able to properly manage their time when moving opportunities through the deal funnel. Based on our fund’s mandate and the startup in question, we need to be able to decide how we would like to proceed.

While it may seem like there is a wide range of potential next steps, in my opinion, there are really only 4 potential outcomes of a first call…

• Pass

• Track

• Content

• Advance

We’re going to discuss each of these in more detail.

Passing on a startup.

This one is pretty clear.

Sometimes a startup is just not a fit for our fund (which could be for a whole host of reasons). In any case, after our first call, we’ve made the decision to pass. In these situations, it’s important to pass quickly and provide clear reasons for why it is not a fit.

Rejection is hard.

Remember this as you deliver the message to hard working entrepreneurs.

Tracking the startup.

For some startups, you might really like the opportunity, but it’s just not a fit right now.

It might not be a fit because it’s too early for your fund mandate and/or the startup might just not be fundraising at this point in time. In this case, you’ll want to track the startup.

Tracking a startup can be tricky, but if done right, it may be one of the best ways to find investments.

By tracking a startup, you’re able to gather information on how the company/team performs over time. You’re able to evaluate “lines, not dots.” This can give you great insight into how the team works, the market’s evolution, and generally the growth of the business.

With that being said, tracking a startup can be difficult.

When not fundraising, most entrepreneurs are “heads down” focused on building their business (as they should be). They typically won’t want to disrupt that work by speaking with investors, unless there is a fundraise on the horizon.

In order to break through, you’ll need to demonstrate how you can provide value to the business, which can be difficult for investors (hence the jokes around “value-add investors”).

If you’re simply following up at a future point in time (i.e., around when the startup said they’d be fundraising), it may be tough to work your way into the deal.

However, if you’re able to build a relationship during this time and really help the startup grow, you might be able to cut the line for the fundraise.

Building content (or your knowledge base).

When I say “content,” I’m really talking about building your knowledge base.

The more time you spend in a space, hopefully, the more that you learn. As you learn, you can iterate on your thesis and build a clear perspective on what you think will succeed.

After a first call with a startup, it might not be the right fit for your fund.

But, it may provide some great insights into a future opportunity. In these situations, we want to gather the information that’s relevant to our thesis.

Now, I’m not talking about collecting confidential information and sharing it with the world.

Your reputation matters. Be respectful of the information founders share in confidence.

With that being said, you might learn nuances about an industry or a market that inform a future investment decision. It could be about the competitive landscape, a certain business model, developments in technology, current regulations, etc. Whatever it may be, making sure you have a process for collecting and synthesizing this information can be key to building upon your investment thesis.

Ultimately, this company may be a pass or track, but the insights should be properly processed.

Advancing an opportunity.

Similar to the first outcome, this one is fairly obvious.

If after a first call you’re excited about an opportunity, you’ll want to advance it in your process.

Unfortunately, for most early investors, it’s not just enough to be excited about a deal. You’ve got to make your case for why the firm should allocate time/resources (aka, You) to perform diligence on the opportunity. In most weekly partner meetings, there are several deals being discussed and the broader partnership will decide which ones to ultimately pursue.

We’re going to discuss how to make this case in a future issue of preferred shares.