“One of the biggest issues I see with salesmanship in VC is that most pitches start with an awkward… ‘so should I start with a little about me and the fund I’m raising’. For most VCs, the default is to just start giving their canned stump speech and steamroll through the meeting.” So says Dave Perretz, Founder at Signal Fund Services.
This is NOT the way professional, trained salespeople sell. Professional salespeople often use “SPIN” selling, one of the oldest, most prominent sales methodologies. The system gives reps a research-backed framework for working and closing complex deals with extended sales processes. And importantly, it works well for raising capital.
SPIN selling was defined in Neil Rackham’s 1988 classic book, ‘Spin Selling.’ Rackham found that salespeople who close at high rates tend to ask the same types of questions in the same order. There are four main question types: Situation, Problem, Implication, and Need-Payoff.
I have used the SPIN framework to recruit LPs for all of the funds which I’ve helped build. Below is an outline of the framework. These questions aim to guide the conversation through the key stages of:
- understanding the potential LP’s Situation;
- identifying their specific Problems or concerns;
- exploring the Implications of an investment; and ultimately
- highlighting the Need payoff or the positive outcomes they anticipate from investing in the fund.
Situation Questions:
- Investment History:
- Could you give me a sense of your overall investment portfolio & strategy?
- Are there specific industries or sectors where you have a concentrated investment focus?
- What experience have you had investing in [funds like ours] or directly into tech companies?
- What has been your typical investment size and focus in the past?
- What promising sectors or industries have you been keeping an eye on but have yet to commit capital to?
- Business History:
- What are the most important technologies that are going to potentially disrupt your business?
- What are you doing now to track and take advantage of those technologies, so you don’t get Blockbuster’d or Kodak’d?
- Risk Appetite:
- How would you describe your tolerance for risk?
- What is your timeline?
- Do you have any deadlines of which I should be aware?
Problem Questions:
- Investment Objectives:
- What specific financial objectives do you hope to achieve through your participation in our fund?
- Business Objectives:
- Are there any particular business challenges or problems you’re looking to address through your investment?
- What other allocators do you think have a situation similar to you?
- Market Challenges:
- What do you see as the major challenges or obstacles you face in the current investment market?
- How do you envision our fund addressing or mitigating these challenges? What prompts your interest in our fund?
- Performance Concerns:
- Do you have any concerns or reservations about the performance of [our asset class] in the current economic climate?
- How do you typically evaluate the success of your investments?
Implication Questions:
- Impact on Investment Portfolio:
- How do you anticipate that an investment in our fund will impact the overall diversification and performance of your investment portfolio?
- Impact on Business Portfolio:
- How do you anticipate that an investment in our fund will help your business strategically?
- Alignment with Goals:
- Considering your investment goals, how well do you think our fund aligns with your objectives?
- What’s the best case scenario of your investing in our fund?
- What hesitations do you have about investing in our fund?
- Opportunity Cost:
- What other investment opportunities are you currently considering, and how do they compare to what our fund offers?
- What are the potential risks or missed opportunities if you choose not to invest in our fund?
Need-Payoff Questions:
- Investing Needs:
- How do you see your involvement in our fund contributing to your long-term financial goals?
- Strategic Partnerships:
- How important is the network and collaboration aspect of our fund to your investment approach?
- In what ways do you envision potentially taking advantage of the industry, startup, and technology insights that we can facilitate?
- Measuring Success:
- How would you define and measure success in the context of your investment in our fund?
Closing Questions
- Confirmation of Alignment:
- Based on our discussion, do you feel that our investment strategy aligns well with your investment objectives?
- Addressing Concerns:
- I appreciate the thoughtful questions you’ve raised. Do you have any concerns that might block you from investing?
- Timing and Decision-Making:
- What is your current timeline for making investment decisions?
- Is there any additional information you would like from us to facilitate your decision-making process?
- Do you consult with your [spouse/board/LPAC] about investments, or can you make decisions unilaterally?
- Check Size:
- What size of commitment were you thinking of making? (go silent…)
- If you’re not sure, what additional questions or concerns might you have before proceeding together?
- Connecting with Other Limited Partners:
- Given your experience and network in the industry, we value not just your investment but also your expertise and relationships. Do you happen to know any other folks who may be excited about investing in the fund?
- Next Steps:
- I believe your involvement in our fund could bring significant value. Shall I send you the limited partner agreement for signature?
Thanks to Shane Ray Martin at B Ventures for thoughtful input!
