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VC: Outbound

  1. Short Description
    1. Outbound strategies are when a VC firm, without prior contact, reaches out to a company to explore making an investment. It is called “cold calling” or “outbound origination”. When firms commit to oubound they set volume goals and can dedicate staff. Like an outbound effort in a startup, there are distinct phases to the process. First, the firm identifies potential leads. Next, they contact the prospects. There can be a long period of relationship building. Finally, the conversation moves to evaluating an investment opportunity.
    2. Compare to the Find Companies With Data sourcing strategy. The difference is in the emphasis. The Outbound strategy emphasizes the contact phase through the lens of a sales effort. The Finding Companies with Data sourcing strategy emphasizes the identification phase through the lens of data science.
  2. Benefits
    1. More Predictable: Outbound strategies can generate more predictable volume.
    2. Repeatable: Referrals may not feel out of your control. Does it feel like other sourcing strategies take creativity or luck? Proponents of outbound strategies see them as more repeatable. If you put in the time and make the contacts, you will generate leads.
    3. Location Agnostic: You can conduct your outbound efforts from a wider range of locations. In the initial phases, you do not need to be in person.
    4. Targeted: You can control the type of companies you are approaching.
  3. Trade-offs
    1. Lead Time: To build a relationship from zero takes time. And if the company is not ready to raise, they may not want to build that relationship. Prepare for long lead times.
    2. Harder at Earlier Stage: It can be harder to identify companies when they are smaller and newer.
    3. Reputation: You will want to tune the frequency and aggressiveness of outreach to not hurt relationships and reputations.
    4. Staffing: Experienced team members often are too busy or claim to be too busy for outbound work. Less experienced members of the team may have the time but not the credibility to have high success rates. As someone gets better at outbound, they are likely to want to transition to other work. Managing the training, expectations and turnover takes effort.
  4. Examples:
    1. Battery Ventures was well known for making early big investments in outbound
    2. TA reported in 2004 that 14 of the 16 investments made that year were initiated from outbound cold calls. (Citation)
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