How To Reach Out To Investors [Video]
Do you prefer podcasts? Listen to the audio here
In our post about the right timing for fundraising we mentioned that, during “jogging”, founders should build up a list so that they can efficiently reach out to investors during the fundraising “sprint”.
The question now is: How to build up this list? How to identify right potential investors? And how to contact them in the best way to achieve your goal?
1 | Identify how much capital you want to raise
This may sound trivial, but it is important to have clear in mind which kind of investors you are targeting and not to waste your efforts. For early stage startups, the question to be answered is:
Business angels or VCs?
Angels are easier to convince, but harder to find. VCs – the other way around.
Anyone with a high income and an appetite for risk and innovation is a potential angel! Maybe they don’t even know it, but it’s your job to try to convince them. Some founders also write to the wealthiest families in their area. This is why they may be harder to find. If they are too public and open about it: be skeptical.
VCs are a totally different ballgame. They are professional investors. They have a structure, a screening process and lots of experience in selecting winners. For these reasons, they are generally easier to find, as all of them have a website and are featured on investors’ lists, but harder to convince because they receive a lot of requests and thus are more likely to ignore your emails.
It is true that they can combine in a syndicate, but you still need to identify the first one to target so that you can be more efficient.
So how to choose which of them to focus on?
Don’t target VCs unless:
– you have a strong and proven business model that just needs more capital to expand
– you think that your business can be a 1 billion business opportunity
VCs are professional investors that don’t simply look for a mediocre exit. They look for top companies and often invest based on the power law. VCs need to make returns so won’t settle for nothing less than a great opportunity: don’t contact them if you forecast 10 million turnover.
2 | Identify similar companies and their investors
Similar companies are those that share with you:
– geographical area
– stage of investment
Example: Fin-tech company in the UK that are early stage. It wouldn’t make sense to contact series B or C investors when you are raising a series A or funds for fin-tech if you produce drones.
Important: You should absolutely not include competitors: they, or their investors, would never invest in a competitive business.
To identify their investors you can use 3 different channels:
A – LinkedIn:
lookup each company page and look for people that are somehow involved with the company, such as advisors, shareholders or investors (more rare)
B – AngelList:
you can use many filters to have results that correspond to your industry, geography and stage and look at the details of their deals
C – TechCrunch
(better source when looking for VC firms). Here you cannot filter to find companies, so it is a good resource only to integrate information you collected beforehand.
D – Online magazines, article or lists
(some publish all the closed investment deals by area)
3 | Refine the list with only investors that are relevant to you and vice-versa
Look at angels’ LinkedIn profile or other sources to understand if they are relevant to you.
VCs have this information on their website, but they are often very big and invest across different geographies and industries. Look for the right people within the company:
When contacting VCs never reach out to partners, but to people responsible for deals flow such as analysts
Partners often provide an email that they don’t regularly use and they are less likely to answer. If you have to choose among analysts, go for the one that has experience in your field.
Never contact several people within the VC firms: you will end up in a black list
4 | Choose a channel and go to the point
There are two ways to contact them: offline or online. We will not focus on the offline environment here; just keep in mind that the smaller the event or meetup you attend, the more likely it is that you can actually speak to potential investors and get their attention. Big conferences tend to be very dispersive.
There are three possible ways you can contact them online:
– Warm approach: an intro
– Cold approach: an email
– Hybrid approach: commenting on blogposts, Twitter or adding them on LinkedIn
Warm approach: tips and tricks
Make an email asking your friend for an intro. It is good practice to include a standard text that is short, concise and clear to the point so that your friend can directly forward it to the investor and ask their permission. In some cases – if they know him/her well they can even directly put you in cc.
Cold approach: tips and tricks
Make a message that says who you are, why you took the freedom to reach out to them and that you would like to see if you are relevant to them. Include a brief description of your business and what you would like to obtain from him, that is:
When contacting investors for the first time, your goal should be that they ask you more information. Never ask them for a phone call or meeting directly: they are going to think that you want to waste their time.
So, be very humble and concise. If they are interested, they will ask you to meet or to have a call, or you can ask them later on in the process, but not at this stage.
Hybrid approach: tips and tricks
The aim of this approach is that they notice you and somehow already decide if you are relevant for them or not.
When adding them on LinkedIn, make clear, again, that they know who you are and what are you looking for so that you leave them the freedom to accept you or not based on what you told them.
What is your experience with reaching out to investors? Do you have useful advice to share with other entrepreneurs or remarks on this video? Let us know in the comments!