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Startup CEOs explain how skipping the formal startup pitch process helped them forge better long-term relationships with their VCs: ‘It’s like getting married’

September 2, 2020

By Keerthi Vedantam

Application performance monitoring startup Grafana Labs was generating enough buzz and inbound interest from investors that it decided to try something new when it needed fresh funding: It would talk to VCs without the traditional pitch deck.

Cofounder and CEO Raj Dutt tells Business Insider that this approach ended up being key to raising the $50 million Series B funding round that it announced in August from investors including Lightspeed Venture Partners and Lead Edge Capital.

Grafana Labs met with over a dozen VC firms while it was raising money and often saved financial information for last, Dutt said, choosing to have a casual conversation with VC firms first: “In a way, you’re kind of pitching each other, right?”

It made the pitch process less formal, which also helped make sure that the conversations with each firm were different, he added.

“Choosing a VC is, in some ways, it feels like getting married if you want a long term partner,” Dutt said. With the company in the enviable spot of being able to choose between investors, Dutt said that Grafana was really looking for that kind of long-term relationship.

VCs are also looking for places where they can commit for the long haul.

Indeed, more investors are seeing startups past early stages of growth. Sequoia Capital invested in video game engine Unity back in 2009, for example, and now holds a 24.1% stake, per the startup’s IPO prospectus filed at the end of August. Similarly, Benchmark Capital was an early investor in Asana, and now holds a 10.4% stake, per its own prospectus.

“You’ll hear a lot of VCs talk about this idea of investing in ‘line,’ not ‘dot,'” said Tyler Tringas, general partner at early-stage funding firm Earnest Capital. “You want to sort of build a connection with a founder and a business over time.”

To that point, Earnest Capital rolled out an application process for prospective investments in May called Trailhead. It gives founders from bootstrapping startups the ability to apply for an investment slowly, over the course of weeks, through different prompts sent via email. It’s purposely meant as an alternative to the traditional pitch meeting, which Tringas says are “not really the best format for understanding a company that I want to form a 10 year investment relationship with.”

Some startups are forgoing the pitch deck in a sign of how the process is changing
Pitch decks are traditionally the main event of the presentations that startups make when they pitch their companies to would-be investors. VCs, too, use them to pitch themselves at the startups in which they want to invest. These decks are simply slideshows, presenting the company mission, product data, and financials in a simple format.

“It’s really just a clear understanding of what they’re building, what the product is, why they’re doing it, and then how they’re going to do it,” said Bryan Rosenblatt, principal at Craft Ventures. “And it has to be clear and concise.”

But when startup founders come for an in-person meeting, Rosenblatt prefers to skip the presentation of the deck and move straight to a product demo and back-and-forth conversation. Founder and CEO of productivity platform ClickUp, Zeb Evans, pitched Craft Ventures with a product demo. The firm led its $35 million Series A in June.

“At the end of the day we’re all users,” Rosenblatt said. “And we just find that that’s the best way to understand it, is to actually see the product in action.”

Similarly, 2-billion-dollar developer startup Postman talked to VCs and raised a $150 million Series C in June without a pitch deck. The CEOs approach was more about showing off the product while conversing with VCs, he said.

“It was illuminating for me personally to know about what their perspective was,” Postman CEO Abhinav Asthana said. He was able to ask questions like: “Do they really understand the product? And do I need to expand their understanding or do I need to refine something?”

‘Power dynamics just sort of shifted with certain startups’
When VCs really want to do business with a startup, however, the process gets even less traditional.

“The venture world is picking up such a pace that, you know, folks are preempting rounds and folks are acting super quickly,” Earnest Capital’s Tringas said. “Power dynamics just sort of shifted with certain startups and so you’re seeing that effect.”

Take, for example, developer startup Solo.io. One VC firm was so interested in building a relationship with the buzzy company that it sent CEO Idit Levine chicken noodle soup when she was sick, with a box of Diet Coke — her favorite drink — for good measure. And, Levine says, they sent her a basketball, signed by all the firm’s partners, saying “We want to win with you,” a personalized nod to her former days as a professional basketball player. Solo.io declined to say whether the firm ended up investing in the company.

When the time came in 2018 for Solo.io to raise its Series A round, she didn’t use a pitch deck when meeting with Satish Dharmaraj from Redpoint Ventures. “It was clear that he cares about the understand, he understands it,” Levine said of Dharmaraj, who led Solo.io’s $11.35 million round and now sits on the company’s board of directors.

And, if history is provides any indication, there’s reason to believe that Dharmaraj is in it for the long-haul: he led several funding rounds in Snowflake over six years before its imminent IPO.

View original article at Business Insider