“Identifying the Common Mistakes Made by VCs During the Fundraising Process” by Mark Suster.

Mastering the Bottom End of the Funnel in Enterprise Sales and Venture Fundraising

During my recent podcast conversation with Samir Kaji for Venture Unlocked, we touched upon various topics that are crucial for successful venture capitalists. These include building a generational firm, understanding the current state of venture in the age of COVID-19, the human psychology of decision-making, and much more. However, one particular subject that I’m passionate about and would like to emphasize is the striking similarity between enterprise sales and venture fundraising, as both require the same critical muscle – mastering the bottom end of the funnel.

Spending Time on Top Funnel Prospecting

One of the biggest mistakes that many startups and VCs make is spending too much time on top of the funnel prospecting because it is easy to have a first meeting, share stories, and build rapport. However, the mid and bottom funnel are the hardest challenges to overcome. Even VCs do this, as we all love first meetings. Like any enterprise sale, you should shift your focus to the buyer’s perspective and understand the buyer’s needs to make them confident of the decision to buy a stake in your fund.

Qualify Your Leads

When raising a new fund, the first thing you should do is establish your core target market. Qualify and research every LP who has raised a fund of comparable size to yours and find out who backed them. There is only a small number of LPs who want to invest in a fund your size with your focus and whose minimum or maximum check sizes align with yours. Compared to having several shallow conversations with many LPs, qualify, qualify, qualify, until you find the right people who want to buy what you’re selling. Remember that wasted time is an existential threat, as in any enterprise startup.

Differentiate Yourself

Now the question is, why do they need to invest in your fund? What makes you different from all the other funds in their portfolio? You should have a firm differentiator that highlights your unique selling proposition. For instance, Upfront invests 40% of its dollars in Southern California firms and despite investing the majority of its dollars outside Southern California, it still sets them apart from the other ten Sand Hill Road funds this LP might be considering. A firm differentiator makes it easier to find and convert core believers, even if not everyone buys into your thesis.

Create Scarcity

The final challenge is to create scarcity and walk away with a smile on your face. This can be the hardest rule to follow, as investors often question why they should invest now instead of waiting until you have more traction, more logos, or more product features. The key is to be willing to walk away, but also create a sense of urgency for potential LPs to invest. However, you must do this carefully to avoid creating a distorted sense of scarcity and to maintain honesty and transparency.

Final Thoughts

Following these three rules can put you on the right track to successful venture fundraising or enterprise sales. But remember that each rule takes considerable time and effort to master. It is essential to qualify your leads, differentiate yourself, and create scarcity to make yourself stand out among other funds. It’s time to shift our focus from top funnel prospecting to mastering the bottom end of the funnel, just like in enterprise sales.