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 will you 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.
What does your startup look like?
While every pot has a cover, in order to find the cover we need to look at th pot first. The right investor is the one with the highest likelihood to invest in the company while providing value to the company and it's management. To make sure there is a good fit between company and investor you should first analyse the traits of your startup company. You should look 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 are you selling to tractor manufacturing in the aggregator industry.
- What are you selling 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?
- What stage your company is at? Idea? IPO? Somewhere in between?
The "what is your stage" point is different from industry to industry but think about number active and paying customers, number of funding rounds raised, number of employees, revenues (not GMV) and forecast confidence.
Identifying the Investor traits that matter
The next step is to define the ideal investor profile. You should look 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 are looking to invest or shows some investment activity in the last 12 months.
- Have invested in my company’s geography - either location or activity.
- Invested in companies that serve the same industry, customers, and product type.
- Invested in a similar staged company.
- Invested in 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 certain VC checks all the boxes, you still need to identify the exact general partners you want to connect with.
While Covid-19 made us all remote and distance, 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.
I have a good guess of what my ideal investors looks like, but where do you find them?
After you carefully defined the most relevant traits and after you've focused around the most relevant 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.
Keep in mind that your research is ongoing since enriching your data will greatly support in any investor communication. For example if an investor published an article or you learn of an investment they have been involved with, you can and should mention these in your communication.
How many investors should I have on my list before I start the fundraising?
This really depends on the stage. 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 searched it, wen you performed the search and the results you have. Keep track of these as repositories are always updated.
I used a monsterous Excel sheet that held all the relevant information and update it as I went through the process.
We built the Investors match tool to offload all the tasks we describe above so if you got to this point - probably check it out first and ping us if you think we can do it even better.