How do entrepreneurs build a list of potential investors for their startup’s funding needs? If you’re out to raise money for a startup, you need a list of investors to pitch. The more targeted the list the better. So, where do you get this list from? Which investors should be on your list? What do you do with it?
The Importance of a Targeted Investor Prospecting List
You’ve got to have people to present to pitch and get funded. The more targeted that list of prospective investors is, the higher the odds of getting funded. You’ll have to deal with far fewer no’s. You’ll find each funding round goes faster.
The ROI on your time will be much greater. That’s extremely important when fundraising is just a small part of your job as a startup founder. Even more so when you are in between rounds and the runway of capital on hand is getting shorter. The earlier this list is assembled, the more time you’ll have to cultivate relationships with these investors so that the ask comes easily when you need those checks.
Your target list should be created immediately after getting your story in 15 to 20 slides which are also known as the pitch deck. Once you have established contact with each one of your prospects, they will start asking you for your pitch deck to see if your investment opportunity is a fit with their investment thesis. For a winning deck, look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400M (see it here)
Types of Investors to Add to Your List
Every fundraising round will involve different types of investors. Don’t hold back on collecting contacts for future rounds. Your next campaign will come up faster than you think.
Your list will probably include:
· Friends and family
· Angel investors
· Angel groups
· Venture capital firms
· Family offices
· Corporate investors
· Finding the Right Investors for Your List
This type of list building isn’t about volume and scale to the largest list. It’s about targeting the right investors who are not only the most likely to fund your startup but who are also the most desirable for your venture. The ones who will bring the most value.
Finding the right fit will often include the following criteria.
Some funds are very ambiguous about the sectors they will invest in. They may differentiate by other factors or funding round stage instead. Though some will have preferences. This focus and specialty can bring a lot of extra value too. Make sure they are willing to fund your type of startup before adding them to your list.
Location still matters. Some VCs and accelerators will expect you to relocate to be near them. Or they will give preference to local startups. The amount of help and support you get may also vary depending on proximity.
When it comes to future fundraising rounds or an exit, proximity can take a lot of stress and wasted time out of the equation of frequent meetings. Startup valuations can also substantially vary by location. You may receive a far higher valuation in New York or Silicon Valley than a similar startup in Spain, Chile, or the US Midwest.
There is little point in pitching investors who can’t check big enough checks for your needs. In earlier rounds, other investors will be seeking to allocate much more capital into their startups than you qualify for or need. This will also impact the data they expect you to be showing and the amount of due diligence you’ll have to survive.
Personality & Vision
Attitude can be everything once you get into a relationship with an investor. It can be a nightmare, or a dream come true. Make sure you can get along with this partner, they share your vision, and they understand the entrepreneur and startup journey.
Don’t assume because of the size or volume of their experience that there will be a seamless match and process. Some VCs can be very predatory. Many new corporate investor entrants are still trying to smooth out integration processes.
What They Can Do for You
Experienced entrepreneurs know that money is the least amount of value that they’ll get from good investors. If you’ve got a promising startup that is proving it works, then the money will come. So, be intentional about whom you take it from. Look for experience, advice, connections, scale, and other benefits. Which investor can best take you from this round to the next milestone?
What is their track record for treating their founders? What about participating in follow on financing rounds? Successful exits? Ask the prospect for an introduction to a founder of their portfolio that recently failed. That would give you a good idea of how they behave during difficult times.
Will these investors likely be flush with capital when it comes to your next round? Will they have enough timeline cushion to enable you to make the best decisions and deliver the best service through your startup? Or will their interests and limitations put too much pressure on your venture?
In this regard, I have the pleasure of interviewing some of the most successful entrepreneurs on the Dealmakers podcast. One of the pieces of advice that I keep hearing from these founders is that you need to be very careful with the expectations concerning the life of the fund of the VCs that you are looking to onboard. You want to avoid the situation of having the VCs pressuring you to do an acquisition because they need to return the capital to their investors (also known as Limited Partners).
When it comes to building a list of investors, get as much information as you can. Compile it all in a database for easy reference later.
Get email addresses, social media handles, phone numbers, and even addresses. Set up your email updates to be as automated as much as possible to reduce your time burden.
Where do you get all this information?
· Networking with other founders
· Startup accelerators
· Sites like Crunchbase or CB Insights.
· These lists of active angels and VCs