Raising capital is often both exciting and frustrating. Usually, the capital raise process begins with a single e-mail or phone-call made to a family member, friend or old colleague. The process can be extremely nerve-racking, especially if you don’t get an immediate response after sending out that initial set of emails.
Here are several key tips to consider before, and during, your investor outreach.
1. Do your homework!
As cliché as it may sound, you only get one chance to make a first impression. Be certain to make the right first impression by being strong and candid. Investors are busy, reviewing countless deals and emails a day so make sure your email addresses all of the critical items an investor will need to know so that they can make a decision to move forward or not. For example receiving a deal email that addresses the wrong investor, industry focus for the firm, or typical check size, is likely to be ignored or deleted. The investor will know immediately that you did not ‘do your homework’. Moreover, if the investor responds and you have done your research on them, the conversation should flow more naturally and make for a more relevant interaction.
Several things you could consider when researching investors are:
- Who is the right investor at the firm?
This includes their individual bios, their professional and educational background, and their LinkedIn profiles (maybe you could even find a mutual connection among your shared networks!
- Does the firm have a preferred industry or focus?
Recognizing the industry focus of the firm will help in efficient targeting and outreach. Most firms have preferred industries that they invest in. This does not mean the investor will never consider a deal outside that focus area, however, being aware of the investors’ preferences and reaching out tactically will help boost the probability that you will get a reply. They may even take your meeting as you can also be a source of fresh new ideas. You won’t get a check but you just handed over a bounty of ideas to the wrong type of investor.
- What is the typical check size for the firm?
This may be more difficult to ascertain but will definitely be helpful in identifying high-quality targets. Many investors focus their investments within a specific dollar range. If you lie outside this, the likelihood of reply will decrease significantly.
- What is the preferred stage of investment?
Similar to the aforementioned points, many investors focus primarily (and state outright in their investment theses) their preferred stage of investment – pre-seed, seed, early stage, growth, late-stage, etc. Being mindful of this will help streamline your outreach by targeting high-likelihood firms.
- Has the firm made previous investments in your sector?
It’s important to research the historic investment of an investor before reaching out. Check to ensure they have not invested in a competitor of yours. They will most certainly take your meeting, hear all about your company and idea, but the chances that they will make another investment into a competitive company are slim so don’t waste your time or their time. You may have also just given your competitors insight into what you are doing.
2. Have your material prepared
The overall goal is to find investors that can help you grow your business with both capital and strategic insights. The process begins with developing a compelling management presentation that provides an overview of your business and the market opportunity. You need to provide investors with enough material to analyze your deal more efficiently, so that they can make an informed decision. If the investor is interested, they will want to see it immediately to judge whether they want to move forward in conducting diligence.
Some types of materials to prepare would be:
- Business Plan (either using a standard or lean-startup format)
- Financial Model (detailed 12 month plan, 3-5 year longterm)
- Pitch Deck (Keep it simple and detail the market problem and solution you bring)
- Milestone Chart (maybe with a GANTT chart for visualization)
- Elevator Pitch (try to disseminate your idea down to just one paragraph)
For a comprehensive list of documents to prepare (not everything is needed all the time!), check out this Recommended Due Diligence blog post by Cyndx.
3. Be patient with your outreach
Lastly, be patient. The process of raising capital is a lengthy one. If it were easier it would be ‘raining capital’. It is much more efficient to take the time to craft well-written, personalized emails, to accurately prepare materials, and to reach out to a handful of high-quality targets than to email-blast two hundred investors. Remember, it’s a small industry of the right investors for your deal and they all talk. If everyone has looked at your deal and there have been no takers, then your chances of success are greatly reduced.
4. Focus on finding the right investor fit
Working to build a relationship among investors takes time, however, it is necessary to attend networking events, fireside chats, or pitching events and request as much feedback as possible to craft your storyline further. Then when you have your story crafted, be selective as to how you reach out and who you reach out to.
And if you need help identifying who the most relevant and appropriate investors are for your deal, Cyndx is here to help too!
Stay up-to-date with Cyndx’s Insights by signing up for our daily newsletter here.