When a VC conducts due diligence, he typically wants to conduct calls with current or future customers in order to understand the customers’ perspectives on your business. These calls are a critical part of the due diligence process, as VCs often won’t know your customers’ perspectives about your service as well as you do. As a result, investors will have to validate that customers actually have the perspective that you have described. For example, a VC will want to hear several customers confirm that they:
- view the problem that you are solving a significant pain point,
- believe that your service will be the best solution,
- are willing to pay the prices you included in your model, and
- intend to use your service as often as you have projected.
VCs typically only call “warm” contacts. By “warm” I mean contacts that the VC either has a relationship with already or has been introduced to by the entrepreneur or a third-party. VCs generally avoid “cold” calls because it often takes a lot of time to find people who are willing to speak with someone that they don’t know. Since VCs are generally very busy, they want to use this time in the most efficient way possible.
As a result, more often than not, the entrepreneur will setup calls with customers for the VC. This process is generally pretty straightforward. The entrepreneur calls a customer, explains that they are being evaluated by a potential investor, and asks if the customer would mind speaking to the VC about their service. However, it is probably wise for entrepreneurs to position the call with the VC casually, as either relatively low importance to the continued operation of the company or one of many investors being engaged. In so doing, if the VC decides not to invest, customers don’t get nervous about the viability of the venture.
You should also keep in mind that it could annoy your customers if they have to do diligence calls with a slew of VCs. As a result, you should only permit the VCs with the highest likelihood of investing make these calls.
Entrepreneurs who have businesses that are still in stealth mode (meaning that they are still keeping their business idea a secret) may find this process of having a third party call their customers a bit unnerving. They might fear that this conversation could expose their idea. While it is worth noting that this is rarely a concern of entrepreneurs that are engaging VCs because their businesses are often already or soon to be unveiled, there is a way to mitigate this risk while still enabling the VC to hear the customer viewpoint. All you have to do is simply ask the VC to keep the concept a secret. If you do this, good VCs will ask questions in a manner that conceals your business strategy.
Other entrepreneurs may find this process to be a valuable way to enhance their business. If the VC happens to know a potential customer that you were not in contact with they may call on that person and ask questions that ultimately generates interest in your service.
Ultimately, most VCs will need to make customer calls in order to invest, or at least depend on the diligence collected by other VCs during similar calls. If you want to raise venture capital be prepared to setup customer calls.
