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Fundraising

Your startup funding is lagging. Here is why.

Investor research is a key step in successful fundraising. If you are planning a fundraising round or if your feeling stuck in your current fundraising efforts this is for you.

June 21, 2020

Your startup funding is lagging. Here is why.

Isn’t fundraising all about hassling?

Many entrepreneurs believe that hassling their startup to as many investors as possible is the right path to fundraising. In reality, it is much better to carefully plan and aim who you will be pitching to and focus only on those targets. If the right investors wouldn't invest, you should probably think about changing something instead of scattershot every investor in the world with the  "I only need one yes" mindset.

Different types of startups need different types of startup

While there is a lid for every pot, we need to look at the pot first to find the lid. The right investor is the one with the highest likelihood to invest in the company while providing value to its management. To make sure there is a good fit between company and investor, you should first analyze the traits of your startup company. It would be best if you looked at things like:

  • Is it a B2C/B2B/B2G/B2B2C/B2x?
  • What is your industry?
  • How do you define a customer?
  • What title are you targeting in the organization? (for B2B)
  • Who are your customers? Are selling to boutique designers in the fashion industry or selling to tractor manufacturing in the aggregator industry.
  • What are you selling to your customers? Software? Hardware? Service? Goods?
  • What is your business model?
  • What is your Go-To-Market?
  • What are your current revenues and future growth forecast?
  • At what stage is your company? Idea? IPO? Somewhere in-between?

Not all investors who invest in startups are similar

The next step is to define the ideal investor profile. It would help if you looked at things like:

  • The type of investor as a function of your stage: Angle, VC, CVC, Family office, RBF, Venture Debt
  • Leader vs. follower.
  • Whether they invested within the last 12 months.
  • They have invested in my company's geography - either location or activity.
  • They invested in companies that serve the same industry, customers, and product type.
  • They invested in a similar staged company.
  • They invested in a similar-sized round to the round I plan to raise.
  • Activity level - you should not entertain inactive investors.
  • Fund age - it might be active - but can't invest in new startups.
  • Fund size will have some correlation to stage and check sizes.
  • Closer to you via your professional network is better.
  • Did NOT invest in a direct competitor or a company that is highly likely to evolve into a direct competitor.

An investor is always a person - never a company, so even if you identified that a specific VC firm checks all the boxes, you still need to determine the exact general partners you want to connect with.

While Covid-19 made us all remote and distant, it will be hard to convince a South-African investor to invest in an Alaskan startup. The distance introduced timezone, culture, and logistics issues. As that is the case, research your local ecosystem very carefully before expanding your search.

"Where to find investors?" is a tricky question

After you carefully defined the most relevant traits and focused on the most pertinent values, you will have a much higher success rate at approaching investors.

The main repositories are professional and focused:

Not all repositories provide an efficient search, so you'll need to sift through a lot of data, using the traits you prepared, curate the data, clean it, filter the irrelevant records, and finally - prioritize based on level of fit to your company.

Remember that your research is ongoing since enriching your data will significantly support any investor communication. For example, if an investor published an article or you've learned of an investment they have been involved with, you can and should mention these in your communication.

Your startup funding rounds will dictate the number of investors you shortlist.

Your stage will dictate the number of investors you shortlist. Early-stage companies should list at least 100 solid names they can approach, while late-stage might be looking at a handful of investors who can handle the big financing rounds north of $200M.

Helpful research tools

Like any project, you'll need to be on top of things through the process. It will be helpful to keep track of what you searched for, where you dug it when you performed the search, and the results you have. Keep track of these, as repositories are constantly updated.

I used a monstrous Excel sheet that held all the relevant information and updated it as I went through the process.
Ping us and we'll share it with you.


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