Prospecting for Gold, or, Better Yet, Drilling for Oil

Prospecting for venture capital gold can be as challenging as was prospecting for actual gold back in the gold rush. Many other miners are also searching for the mother lode. You will need a competitive advantage—all the known art plus some entrepreneurial inventiveness—to prevail.

Part of the known art is recognizing that there are far more effective and efficient approaches than the old miner’s panning technique. That technique called for the miner to continuously slosh water around in the pan until the gold settled to the bottom. The equivalent today would be reaching out to all those 1,200 venture capital firms and angel groups, hat in hand, hoping for enough gold to settle in your venture. Raising the funds you need that way could take years—maybe your whole life—and you might still come up empty. And implementing your idea can’t wait for years. The fast-moving marketplace waits for no one.

In order to have a reasonable shot at your venture reaching the market while there’s still a market available to it, you’d be better off figuring out where the small number of highest potential sites are and digging intensively there, more like the way oil companies search for the few best places to drill for oil. This approach involves pursuing just five or six VCs, selected using the following three-step method:

  1. Find the VCs located geographically near your company. Some venture capitalists may even want to walk or bike to your office or at least be able to drive there.
  2. Narrow your list further by considering only those who invest actively in the deal stage where you’re at. We’ll review in a minute how the industry defines deal stages so you’ll know the stage where you’re at, the way the VCs look at it.
  3. Narrow your list still further by zeroing in on firms that show an interest in the industry sector you aim to enter. We’ll discuss shortly how to find that out.

By identifying the firms that meet all three criteria, you will have narrowed your list down to a more manageable number.

 

Ken Freeman is the co-author of:
Building Wealth through Venture Capital: A Practical Guide for Investors and the Entrepreneurs They Fund

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