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A VC on shifting deal flow online and qualifying questions founders should ask prospective investors

Here's how Kyle Lui approaches deal sourcing now, his thoughts on the DocSend Fundraising Network, shifts in the venture capital market, and more.

We are formally launching a free service to introduce founders raising Pre-Seed or Seed rounds with top funds who can issue term sheets (i.e. lead the round). It’s called the DocSend Fundraising Network (DFN). Below, we feature key metrics from the DFN and our Q&A interview with Kyle Lui of DCM Ventures on his process for startup deal sourcing, qualifying questions founders should ask prospective investors, and more.

Q&A with Kyle Lui, Partner at DCM Ventures

As a Partner at DCM, Kyle helps entrepreneurs scale their companies and focuses on consumer internet, SaaS, and financial technology. Here’s how Kyle approaches deal sourcing now, his thoughts on the DocSend Fundraising Network, and more.

How has the process of finding companies changed during the pandemic when you no longer have access to in-person events and more traditional ways of connecting with startups?

We are actively looking at new deals, but are spending more time doing references on the founders and the extended team. While doing customer references has already been part of our diligence process, we are digging in deeper than ever since most of our meetings are happening over video conference. Many “investor coffee meetings” with angel investors and seed funds for deal flow are being replaced by 30-minute catch up sessions over Zoom. In some ways, deal sourcing is easier because video conferencing allows us to meet with startups everywhere, and since this is the standard, neither investors nor founders feel they are at a disadvantage with virtual meetings.

With the current changes in society, do you see venture capital shifting into new markets and demographics?

Yes. The VC industry has recognized for quite some time now that diversity is a strength, but we still have much work to do here. In terms of geographic diversification, it is easier than ever for investors based in traditional tech hubs (e.g., San Francisco, New York, LA) to do deals everywhere. Pre-COVID, many investors were geographically concentrated. Now more than ever, we are seeing investors actively seek diverse founders which is a move in the right decision. One set of questions we ask ourselves is: (1) How is this startup/market impacted by COVID-19 and future pandemics? (2) If this market benefits in some way from the current environment, is it a durable advantage?

How do you see the DocSend Fundraising Network fitting into your deal flow process?

As VCs, we are constantly looking for interesting top-of-funnel deal flow. DocSend has become the standard tool for tech startups to share fundraising materials, and the Fundraising Network would be a great way to increase qualified deal flow. Knowing that the decks have been vetted is helpful.

How important is the pitch deck now that fundraising is more virtual than ever?

It is probably more important than ever that pitch decks clearly convey the story for your company and your round. We’re seeing founders reaching out to more investors and doing more meetings to raise the same amount of capital, so using a tool like DocSend that tracks analytics and engagement will help founders in their fundraising process.

Is there anything you think founders should be thinking about right now or anything you want to add?

Ask your prospective investors qualifying questions like: (1) How active have you been during the past few months? (2) Have you done a deal yet without meeting the founder? Many firms are quite traditional and may want to meet in person as part of the process. It would be good to understand with each investor what their process is, and how it may have changed in the past few months.

For Founders: We have spent over a year digging into what makes a good pitch. We looked at millions of data points around what pitch decks lead to first meetings and to term sheets.

We are now putting this research to work. If you are a founder, you can use the DocSend Fundraising Network (DFN) complimentary service where we introduce top founders raising Pre-Seed or Seed rounds to top funds who can issue term sheets (i.e. lead your round).

For VCs: This is a deal intro service focused on quality, not quantity. Our goal is to identify the best early-stage deals and connect them to the right lead investors that can make them succeed. Based on the number of decks we’ve seen over the years, we are able to put a reasonable quality bar in place.

Announcing the DocSend Fundraising Network

The DocSend Fundraising Network uses a data-driven approach to provide warm intros between quality founders and active VCs who match their needs. Here’s the full announcement.

How we Built a Startup Fundraising Network that Removes Bias

The DFN has been in the making for almost a year now and it consisted of three separate MVPs that we iterated on to get to the offering that we just launched. Here’s the story of how we did it. Read more on LinkedIn.

Would you like to be featured in a Q&A?

Next week’s Q&A is focused on document management for Agencies.

Each week, we focus on a fundraising theme and share insights from an investor, founder, or industry expert and wanted to extend this opportunity to our readers. If you’re interested in being featured in our newsletter or on our blog, you can reply to this email or reach out to [email protected] with a topic you’d like to cover.

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