Building relationships with investors is a key step in the process of securing funding for your startup. In fact, for your startup venture to finally become a reality, finding the right investors is critical. As any founder knows, this activity is definitely no easy task, here are a few key strategies you may want to take note of when building relationships with investors.
Building an investor pipeline – finding the right ones to target
Before you can approach a prospective investor for startup funding, you first need to find prospects. This process of identifying potential targets is known as building an investor pipeline. Initially, you will want to build an investor pipeline of at least 100 prospects. As you search for investors, be sure to only target those with an interest in your industry. You will also want to ensure that your investment is within their range and that your startup is in the right stage for them. For example, if your startup is pre-seed, don’t waste your time targeting an investor who only does later stage investments. Great tools for finding prospects to build your investor pipeline include LinkedIn, Crunchbase and Angel.co.
Learn everything you can about your investor pipeline targets
Timing plays a very critical role in approaching the right investors for your startup. All investors have their own preferences when funding a venture. Some of them prefer to invest when a startup is pre-seed while others want to come in for the seed stage, Series A or even later. Be certain to know the preferred investment stages for your targets and only approach those that are interested in investing in whatever stage your startup is in. It is also important to understand the industries of interest to your targets. Unless you have a close, personal relationship with an investor, there is little likelihood that they will invest outside of their preferences.
Establish a more personal connection
Even as the purpose of getting your startup funded is a business decision, it is important to establish a more personal connection with the targets in your investor pipeline before you approach them. Establishing friendly relationships with your potential investor targets works to raise the value of your venture in their eyes. The best way to start building relationships with investors is to ask people in your network for warm introductions to your targets. This is really important because few investors are willing to review unsolicited proposals that do not come with a warm introduction from a colleague or connection. It is also highly imperative that once you have made an initial connect, your investors feel your passion towards your startup by making them aware of how they can help you achieve it.
Building relationships with investors – do not pitch them too soon
When you get a warm introduction to a potential investor, do not make your pitch in the initial email or phone call. Doing so is not much different from asking someone to marry you on the first date. You want to build relationships with investors just like you would do in wooing a potential mate. It’s okay to talk about your startup but don’t pitch them right away. Instead, spend your time both learning about your prospect and demonstrating your competencies as a founder and key aspects of your startup including value proposition, target customer, revenue model and key performance metrics.
Personalize your presentation to investors
Investors have most likely heard and seen it all as they are pitched numerously each day by other hopeful startups. Make certain that your pitch stands out above the rest by personalizing it. You can do this by learning as much as you can about your investor targets and understanding the performance metrics that are important to them. In other words, focus on what they want to hear, not what you want to say.
In the past, many startups have utilized the practice of preparing one presentation that they pitch to all investors. After-all, pitching the same presentation is practice made perfect as you get better at presenting the same ideas over and over again. But in the real-world, this practice just doesn’t work. For example, if your prospect is highly technical, then your pitch to that investor should focus on the more technical aspects of your startup.
Rejection does not always mean an investor is NOT interested
A harsh reality when finding the right investors to fund your startup is you that will get rejected–a lot. This is a fact of life for founders. Most important, you should not take rejection personally by burning bridges with your investors.
Being rejected does not always mean that investors are not interested. Many times, investors are simply waiting for the right stage for your startup to reach before they begin investing money. In some cases, investors have been known to even approach startups well after they have rejected them. This is why it is critical to avoid burning bridges with your investors at all cost.
If you are rejected, simply thank them for their time and ask if you can keep them updated about your progress. If they are agreeable to that, then do keep them updated, but limit your updates to only those that are meaningful and relevant. If you overwhelm a target with too many unnecessary updates, you will quickly lose their interest and most likely, burn a bridge.
It’s no secret that building relationships with investors is a time-consuming and often times, frustrating process. But after all, if it were easy, then founders wouldn’t have such a tough time securing startup funding. Success comes only to those who approach the startup funding process strategically and with a great deal of perseverance.
Interested in learning more about how to build relationships with investors? Contact me today and let’s talk! You can also check out this post about how to find investors on LinkedIn.