Should you build relationships with VCs before a raise? That’s a hard yes.

In my first month in venture, an investor friend of mine called and told me about his newest portfolio company - let’s call it “X.” He was particularly excited about this investment because he had just lost a deal a few months prior, in a similar business we’ll call “Y.”

While diligencing Y, he didn’t just get conviction on the company. He got conviction on the whole category. So if Y didn’t work out, he knew he would eventually make a bet in the broader space. He and his associate reached out to all the founders of related businesses, and met the team behind X. When X was ready to raise a few months later, my friend ran a tight process. While other firms needed time to get up to speed and convince their investment committees to get on board, he had already done the work. He also impressed the founders of X, because of how much he knew about their category. He viewed this whole process as a win, because he ultimately viewed X as a better bet than Y.

Why is that story worth sharing? Well, it provides a window into why it’s so important to build relationships with investors well before a raise. I know some investors feel differently, but for health-tech, I’m firmly of the view that this is time well spent. So I’m ready to argue my case, and bring in the views of investors from firms like ACME, 7wire and Foreground Capital. In this piece, I’ll also provide tactical insights from the field, like how much time to spend with investors before and in the thick of a raise, based on countless companies I’ve spoken to about this topic. And how soon after a raise to start preparing for the next one.

VCs need to sell, too

How do deals get done at most VC firms? Typically speaking, it starts with a series of conversations with one or two individuals at the firm, perhaps a junior and senior person like an associate and partner. At that point, assuming things progress, there’s a pitch to the broader group. That meeting is often on a Monday. From there, the smaller team at the VC - known as the “deal team” - kicks off a diligence process, which might involve talking to customers, getting references on the founders and executive teams, building a financial model from scratch (sorry founders, most VCs will not rely on yours!), and so on. That ultimately results in an investment memo, which gets presented to an Investment Committee (IC).

This whole process can take anywhere from a few weeks to a few months.

Most founders want the process to move as quickly as possible for obvious reasons. To get a term sheet, they often resort to FOMO tactics. But these founders should put themselves in the shoes of the deal team. They need to be able to show up to IC and impress. If they have very little knowledge of your particular space going into the process, they’ll need time to get the learnings they need to make their case. And they’ll need to diligence the company, too, including the founding team and senior executives. That takes time.