What is the best way to meet startup investors?
You started a company, attracted a couple of great cofounders or other team members, and you have made some progress. You think it is time to approach investors for outside capital to help your company grow.
But… you have never raised money before and you don’t know any investors. How in the world are you going to meet the people who fund startups, either angels or venture capitalists?
What is the right time to raise money?
The first thing to realize is that raising capital is a three to six-month process, at a minimum. “What, why so long?” you ask.
First you have to meet the investor and his partners (if he is an institutional investor like a venture capitalist or part of a large angel group).
Then the invest does his/her “due diligence” or research on the opportunity, the market, the technology, and the team.
Then you negotiate the terms of the investment.
Then you work through the legal paperwork and close. The process takes time.
If you aren’t sure whether you’re ready to raise outside capital, I suggest you pick up a copy of my Free Guide, The Insider’s Blueprint to Raising Startup Capital which can walk you through what investors are looking for.
Develop a Target List
The very first thing you want to do is determine the right investors for your company.
Angel investors have a different profile of company that they invest in compared to VCs. And different VCs have different areas of focus. They differ by sector (tech, healthcare), stage (early, growth, late) and specialty (a SaaS investor probably isn’t going to focus on a robotics company, for example).
Developing a “target list” of the investors who are most likely to fund your business will cut your fundraising time significantly and also cut your frustration level. JD Davids, a startup fundraising expert, believes that a well-executed target list and fundraising plan can cut your fundraising time in half.
Use a tool like AngelList or CrunchBase to determine which firms invest in companies like yours, and use the investors web site as well. You want to approach not only the right firms, but also the right partners.
Warm Intros are best
Despite the media hype and fun factor, “Shark Tank events,” demo days, pitch competitions and the like are a terrible way to meet investors. The first reason is that there can be a lot of “group think” at those type of events. The second reason is that investors don’t like to feel pressured into making decisions.
What you really want is a warm introduction from someone the investor knows and trusts.
The best warm introductions come from other entrepreneurs, preferably those who have made money for that investor. LinkedIn and Twitter can be helpful to try to figure out if you know anyone who knows that investor. You want to be continuously building your network of local entrepreneurs through meetups and conferences to expand the chance of getting warm introductions.
Sometimes investors will introduce you to other investors if your company is not a fit for their fund. It’s not that common, but it does happen.
Service providers, like lawyers, bankers, and accountants, can also provide you with a warm intro. These are not the best introductions, not nearly as good as another entrepreneur, but they are better than going in cold. VCs work with a lot of different law firms, and so they will likely respond, but they don’t put too much faith in the firm’s ability to pick winning teams.
Don’t Forget Cold Calls
VCs will tell you that they never do deals from a cold call or cold email, and this is mostly true. There are some notable exceptions of course. Box founder Aaron Levie cold emailed Mark Cuban and got Cuban to invest.
But don’t think of the cold call or cold email as a way to get money, at least not right away. The cold call is a way to begin the relationship.
When VCs say that they don’t invest off a cold call, they probably aren’t keeping track of the entrepreneurs that they have known for 6-12 months, who have kept them in the loop and done the regular updates like I suggested above.
If you’re going in cold, make sure you do the following:
Only reach out to investors who are well targeted based on your research and should be interested in your company based on your stage and sector
- Send a short email, 1-2 paragraphs
- Do describe the problem you are solving, why it’s big and real, and why you know about that problem
- Do have a 1 pager (PDF) that you send that explains the company and team
- Do include numbers and traction
- Do mention real customers
- Don’t ask to “pick their brain.” Investors don’t have time for these meetings. They do have 20 minutes now and then to meet passionate founders
Building long-term relationships with investors
Think of fundraising like a long-term sales process, or even like a courtship.
Once you have received an introduction, and after you have delivered your initial pitch, you need to build a relationship with the investor. It may take six months or more for the investor to get to know you and to see the progress that you are making in your business before they are ready to invest.
Venture capitalist Mark Suster says that he wants to see startups “on his radar” for six months or more so he can track their progress and see that the business has momentum.
There are multiple ways to keep in touch with investors. One of the easiest is with a regular email. Every month or so, send an “investor update” email showing your progress. Highlight your team additions, your new customer signups, your product development activity, new patents or other intellectual property protections. One other thing to include are demonstrations of your thought leadership like blog posts, panels or speaking engagements, white papers, and the like. With your best investor targets, try to get back in and meet with them for 30 minutes in addition to the emails.
Remember that raising capital is like sales—it takes a lot of ‘no’s’ to get to a ‘yes.’ The best way to get to yes is to have a plan, get your introductions, take your time, and show momentum.
Rob Kornblum is a startup coach, a veteran entrepreneur, and a recovering venture capitalist who helps entrepreneurs start and grow successful new businesses. Get a FREE copy of Rob’s Insider’s Guide to Startup Funding here.