The best time to connect with an investor is before you're raising. Build relationships and get advice when you aren't asking for money.
How many situations can you think of where the first time you meet someone it’s to ask for them to enter into a long-term relationship with you and take a significant risk on you with their hard-earned money?
Not many.
An often overlooked part of fundraising is the time spent preparing for it. The most crucial prep work is identifying the angels and VC partners that you might be able to work with, then getting a warm introduction to them, and building a relationship to lay the groundwork for a fundraising conversation.
Particularly now, when face to face meetings are difficult, preparation and early engagement are even more important than usual.
There are all kinds of benefits to this approach. You'll get early feedback, insight into key investment drivers, potentially access to investors’ networks, and of course you will be in prime position when you go into full raise-mode.
So, what are the best practices for this?
Qualify Potential Future Investors
The first step is identifying investors who are a good fit for your company. The most obvious way to do this is to look at investors who have invested in similar startups to yours. Eliminate any that invested in a direct competitor. Keep in mind sector, location, round size and frequency (are they investing currently, how often do they invest, and so on). Our Investor Search feature, available for companies who have received our Investability Rating and Assessment, provides free access to a list of best-fit investors. Of course, we also suggest looking around at other databases too, and engaging actively with your network.
Another route, mainly if you are at the angel stage, is to identify people who are in a similar space as your startup who have held positions in large corporates. They may have access to investment capital as well as some knowledge about the sector (more on that later). So, if you are an insurance technology business, looking around for senior execs at large insurance companies could be worthwhile. Getting a warm introduction to them is an excellent route to building a fruitful relationship.
When approaching VCs, try to identify the right team member to connect with. Larger VCs have individuals with specific sector/technology focus, and you will enhance your chances of success if you target the right person.
Research The Human Element
Now that you've qualified potential investors in terms of fit and focus, it’s time to qualify them from a human perspective. What makes them tick? What is the latest deal they have worked on? What are their interests? Read their blog posts on Medium. Follow them on Twitter. Listen to podcasts they've been on. All this research will come in handy when the time comes to engage with them.
Find a mutual connection
We have an article on this already here for more info, but a quick overview:
The ideal way to connect with a potential investor is a warm introduction from someone they trust. Founders of other companies in an investor's portfolio are ideal as you know the investor trusts them; they invested in them. If you find a mutual connection here then great. LinkedIn is, of course, a useful tool for combing mutual connections.
A cold email or message on LinkedIn should be a last resort. If you are starting your prep well ahead of time, your network will grow the more meetings you take, so your chances of identifying a good way in will improve - the investor world is relatively small, and generally minded to be helpful. Hold off on the cold email until all other options are exhausted.
The Ask
Remember if you aren't in fundraising mode yet, the ask isn't for a chunk of money. Instead, consider asking for advice. Since you've done your research, you hopefully know a bit about what makes them tick, where their expertise lies, and where they might be able to add value beyond writing cheques. Identify that shared interest area, and use this in your ask.
Opt-In Intro
You've identified who can make the introduction, and what the ask is. Now, write up a quick email for the introducer to share with the potential investor - just a couple of sentences is usually plenty.
We think the best way to do this is an opt-in intro. The introducer sends off the email to the targeted investor without you cc'd. Optionally, include an introductory (not fundraise) one-pager or deck. The introducer will conclude the email by asking the investor if they would be interested in an introduction.
An opt-in intro ensures there is mutual interest for a meeting, allows the introducer not to burn a relationship on an unwanted introduction, and for you to spend less time on connecting with investors who haven’t already expressed some interest.
Meeting
The preface of this initial meeting is feedback and advice. If you are only interested in the potential for future investment, then you are unlikely to get the best results. Use the opportunity to learn, get feedback and engage. Make sure you ask questions - don’t just pitch. What are they working on? What is their recent focus? Why? The data you collect here will provide insight down the line on whether they might invest. It will also give you insight into the market more generally.
At the end of the conversation there is a great opportunity to further your cause. First, ask if, based on the conversation you just had, there is anyone else the investor thinks you should be speaking to. Second, ask if you can stay in touch, and if so would the investor like to receive your monthly updates Finally, is there anything you can help them with? Basic common sense; but sometimes easy to forget in the moment.
Add to the Update List
One of the more important outcomes of the meeting is being able to add the investor to your mailing list. Regular emails will hopefully keep the relationship fresh in a light touch way, and if things are going well they may even contact you to discuss your upcoming round. The investor update is an excellent placeholder for potential future investors.
Never Stop Researching and Qualifying
Keep in mind that fundraising is like a sales process. Qualifying leads, adding to the funnel and research are a constant activity. This is as true for pre-fundraise all the way through to commitment. It isn’t a step by step process; it’s iterative.
And, as soon as you have successfully completed your funding round, it’s probably time to start preparing for the next one.