Most founders I encounter have the wrong mindset when it comes to approaching investors. They don’t give any thought to building relationships with investors but instead, approach them like a drunken frat boy on the prowl for a late-night hookup. Here’s an example of what I often see at startup networking events.
- Founder: “What do you do?”
- Investor: “I do X, Y and am an angel investor.”
- Founder: “Great! Let me tell you about my startup.”
- Investor: Sighs and says, “Okay,” and starts thinking about tomorrow’s plans.
- Founder: “Are you interested?”
- Investor: “Not really, but thanks.”
The founder then moves on, in search of the next prospective investor, using the same approach over and over, usually departing without a single good prospect and feeling frustrated. This isn’t much different from what you might see at a party where a drunken frat boy approaches as many women as he can, simply saying, “Hey there – want to hook up?” More often than not, the women are annoyed and the frat boy winds up leaving alone, frustrated.
This method of pitching investors is a waste of time for everyone involved. Sharp founders recognize this as a clumsy, ham-handed approach and instead, recognize the strategic value of building relationships with investors before approaching them. Building relationships with investors means understanding their investment interests and forging a connection with them before you pitch.
I do some angel investing and probably get about 15-20 emails or messages a week from founders pitching their startups. Out of the hundreds (or thousands) of messages I’ve received, not one of them has resulted in a serious investment discussion. Why is that? Mostly it’s because the founder hasn’t sought to understand my investment interests beforehand, and more important, they haven’t taken the time to establish some sort of connection with me first.
Most investors I know feel the same way. In fact, the majority won’t even read an unsolicited pitch – they only review pitches that come to them via warm introductions. If you are a founder seeking investment to launch your startup, then you must learn to understand the value of relationship-building.
How to Build Relationships with Investors
Here are some recommendations for strategically building relationships with investors before you pitch them.
Understand the Prospective Investor
Before you approach a potential investor, you must first understand their interests and investment strategies. This requires doing homework so you can understand the industries that interest them and the types of investments they like to make. Here are some points of understanding that help founders build relationships with investors:
- What is the preferred stage of investment (pre-seed, seed, later stage)?
- What are the preferred industries?
- What is the size of previous investments?
- What startups have they invested in?
- What type of role do they like to play in the startups in which they invest?
Make the Connection Personal
Mutual connections are a great strategy for building relationships with investors. To do this, founders have to mine networks like LinkedIn, Angel.co and others to uncover shared connections and ask for a warm introduction. If there aren’t any mutual connections then founders can work to build a relationship by attending networking events and conferences or engaging with prospects on social media. In both cases, start slow and don’t think like a drunken frat boy (see the next point).
Prioritize Conversations, Not Presentations
When you engage with a potential investor–in real life or online–don’t immediately launch into your pitch. Find something meaningful to say and then approach them. If it’s in real life, you could say something like “I am a faithful reader of your blog and really appreciate your insights.” If it’s online, then you can perhaps start a conversation by crafting an intelligent, thoughtful response to one of their posts. Whatever your approach, the goal is to start a conversation and begin building relationships with investors before you pitch them.
Have the Right Pitch
You might be tempted to go for a cookie-cutter presentation for all your potential investors. Why not? It’s easier, faster, plus you get better with time saying the same things and ideas all over again. It’s a good idea right? Wrong, remember that different investors have different priorities, values, and backgrounds. Not all of them will appreciate certain metrics the same way. When you pitch to a certain investor make sure you prioritize what is most relevant to them.
Accept Rejection and Don’t Burn Bridges
Things will not always go your way, if an investor says they’re not interested in your startup don’t ask for reconsideration, or worse –go all dramatic with statements along the line of “you’ll be sorry…” Instead, recognize the value of the possible relationship, acting professionally and like an adult. Today may not be the right time for this prospect, but things could change tomorrow. And, you never know who else might be in the investor’s network. If you take the time to build relationships with investors–even if they’re not right for your startup–you may be able to ask for a warm introduction to another prospect at a later time.
Building relationships with investors takes time, effort and most of all–strategy. But if you’re a founder and you’re serious about raising money for your startup, then this is the most effective approach you can use. Make the most out of LinkedIn and other social media channels such as Twitter and even Instagram. And to do your homework on prospective investors using resources such as Angel.co and Crunchbase. There are also accelerator programs like the Founder Institute and others, that teach founders how to build relationships with investors as part of their curriculum.
Want to learn more about how to build relationships with investors? Contact me today and let’s talk!