How VCs are like Gift Card Businesses

How VCs are like Gift Card Businesses

We're only at the end of September, but it's never too early to get the holiday present-planning out of the way. Especially when you're someone like me who dreads the stampede accompanying every Black Friday, Cyber Monday, Singles' Day, etc.

These global retail holidays have no obvious connections to startup fundraising insights... but leave it to me to find one ??

Planning presents for my niece and nephew had me thinking about one of the most popular holiday gifts in the US and its connection to an important lesson for dealing with VCs.

The item?

Gift cards.

The Gift Card model in Venture Capital

To understand the connection to VCs, you have to understand the gift card business model.

How do companies make money selling gift cards? It’s somewhat confusing because a $10 gift card has zero inherent margin. The company that issued the gift card has to deliver $10 of value to the person who paid $10 to receive it. In other words, the COGS of the product is 100% of the retail price.

So why and how does this work? The answer is something called “breakage.”

Breakage

Breakage is the value of a gift card that is never redeemed. Breakage creates margin for the selling company and is why gift cards work as an actual profit-driving product.

Companies sell gift cards assuming a portion of people will lose or otherwise never get around to redeeming them.

So how does this relate to VCs? There is a similar dynamic as it relates to a VC’s effort to generate deal flow.

VCs create deal flow in a number of ways:

If you notice the purple stars on the diagram above, many are reliant on the help that VCs provide the ecosystem. The more help a VC offers, the more reciprocity they will leverage to have good deals sent their way. And the more a VC is thought of someone that is helpful, the more good deal flow sources will want to spend time with them.

A key distinction, VC Breakage

A key distinction is that a VC doesn’t need to fully deliver the help they offer to capture goodwill. Their offer on its own boosts their reputation.

In some ways, VCs not only know this but depend on it to maintain their approach to business. It’s their own version of breakage. They offer WAY more help than they’re able to deliver on.

By offering to help, a VC gets their name in the good graces of the people they offer the help to. This creates a virtuous circle of more and more introductions to entrepreneurs looking for help.

What to do with this…

Now I know what you’re saying. “Interesting analogy, Jason, but how does that impact me?”

Here’s the trick. The same way I’d encourage you to keep track of those gift cards you get for Christmas, you should take note of all the gift cards VCs give you when you meet with them.

The same way I’d tell you “go spend that Best Buy gift card right away so you don’t forget it,” I’m also telling you “they offered to connect you to that valuable contact — make sure you follow up and remind them!”

Cash in your VC gift cards

Make sure when people offer to make connections for you or help you in any way, politely follow up after the meeting to remind them. If they didn’t want to help you, they shouldn’t have offered.

The best method is to send an email right after your meeting thanking them for their time AND for the generous offer to do X, Y, and Z. You’ll not only remind them and graciously accept their offer in this post-meeting recap email but you’ll can also softly nudge them with a “hey just a quick check — were you able to…” if they don’t follow through on their offer within a week ??

A final thought

While I am calling this situation out as “VC gift cards,” if you work in the startup ecosystem you will realize that many players besides VCs also rely on “gift card” offers and breakage.

In any similar situations, you should remember my advice and proactively follow up to cash in those gift cards!

Who knows what those offers will lead to…


See you at my next Fundraising Workshop!

Register Here

Startup founders, if you're preparing to raise in 2024, I have some questions...

  • How strong is your grasp of fundraising fundamentals?
  • Do you have a plan for how to prepare for a fundraising?
  • Do you know what to expect from the fundraising market in 2024?

If you answered "not great ??" or "nope!" to any of the above, join me for this 3-part fundraising workshop.


Hungry for more fundraising guidance?

→ Access our exclusive rewards for Fundraising Fieldnotes subscribers.

Subscribe here, and you’ll be enrolled in our referral program, exclusively for Fundraising Fieldnotes readers: https://bit.ly/FundraisingFieldnotesLI

→ Planning to raise a round in 3–6 months? Join my fundraising accelerator cohort: https://www.fundraisewithconfidence.com/

→ Follow me on Twitter: https://twitter.com/jayyeh

→ Listen with a friend to Funded, my podcast that tells the rollercoaster stories of how founders raised millions — (please leave a rating and subscribe):

https://www.fundedpod.com/

Kevin Chong

Strategy & Corporate Development

1 年

Nice chart!

CHESTER SWANSON SR.

Realtor Associate @ Next Trend Realty LLC | HAR REALTOR, IRS Tax Preparer

1 年

Thanks for Sharing.

要查看或添加评论,请登录

Jason Yeh的更多文章

  • A Killer Guide to Combining an Angel Army with Stacked Notes

    A Killer Guide to Combining an Angel Army with Stacked Notes

    Use this strategy to really jump start an early stage fundraise *If you are new to my newsletter, you can access all of…

    1 条评论
  • You're Overcomplicating Things

    You're Overcomplicating Things

    You're probably overcomplicating your pitch. Here are 2 tips to help *If you are new to my newsletter, you can access…

    2 条评论
  • How to request an intro

    How to request an intro

    Understanding 2 types of intros unlocks more powerful intros *If you are new to my newsletter, you can access all of my…

    1 条评论
  • Why your intro requests aren’t working (and how to fix it)

    Why your intro requests aren’t working (and how to fix it)

    *If you are new to my newsletter, you can access all of my previous posts here. https://bit.

    2 条评论
  • The Importance of Failing Fast in Fundraising

    The Importance of Failing Fast in Fundraising

    *If you are new to my newsletter, you can access all of my previous posts here. A lot of you have probably heard the…

    1 条评论
  • What's the Deal with Due Diligence?

    What's the Deal with Due Diligence?

    The dealio with due dily *If you are new to my newsletter, you can access all of my previous posts here. Before we get…

    1 条评论
  • Capturing Value From Your Investors

    Capturing Value From Your Investors

    Get them on the hook to deliver value! *If you are new to my newsletter, you can access all of my previous posts here…

  • Venture Capital: A Means to an End or an Essential Partner?

    Venture Capital: A Means to an End or an Essential Partner?

    What can a VC really do for you? *If you are new to my newsletter, you can access all of my previous posts here…

    1 条评论
  • Translating the 9 Most Common Lines in VC Emails

    Translating the 9 Most Common Lines in VC Emails

    Decoding VC Emails: What They Really Mean *If you are new to my newsletter, you can access all of my previous posts…

  • 8 Unsung Heroes in Fundraising

    8 Unsung Heroes in Fundraising

    Recognize & Nurture These Relationships *If you are new to my newsletter, you can access all of my previous posts here.…

社区洞察

其他会员也浏览了