Every start-up need funds and most of the times it is managed by raising money from an investor, which can be a very challenging job. It requires an amazing pitch deck to arrange the funds that can make your dream come true! In our previous blog titled ‘Smart Funding for your business,’ we have written about the dos and don’ts of pitch decks. In this blog, however, we are not going to talk about pitch decks. We would like to talk about another important feature of fundraising i.e. the people to whom you would be presenting the pitch decks – THE INVESTORS or VENTURE CAPITALISTS (VC) as we call them.
One of the toughest parts of getting funded is finding the right investor. In the process of finding the right investor, an entrepreneur might have to talk to dozens of investors. Your investor is as important and instrumental in your success as your ‘BIG’ idea or pitch. Your investor and you have to be on the same page, both being able to work in the same field and in sync with the vision and goal you have envisioned for the company. This entire process of getting the right partner is a herculean task and requires a lot of research, perseverance, diligence and of course a well-crafted pitch.
In this process the first step is to draw an ideal list of investors, shortlisting them carefully. Getting funded by VC is not easy unless your approach is correct and you are a good match as per his interests. When looking for a prospective VC, instead of cold calling, reach out to friends, relatives, and ex-colleagues and ask for introductions/recommendations to investors who would resonate with your business plan. The point I am trying to make is investors are flooded with inquiries and one way to ‘STANDOUT’ is to get highlighted and validated by someone they know and can trust. We will discuss it in details further on this blog. However, remember to step back and be judicious and smart while choosing the path to investors. This is the beginning of a very important journey.
UNDERSTANDING INVESTOR TYPES
Every entrepreneur should understand that all investors are not alike. If you go to an individual investor’s website, you will get to know the investor’s portfolio, stages, and sizes of investments as well as their industry focus and location. Most Angel Investors and VCs will fund seeds and start-up projects. Some investors may focus on matured projects where they want to pump in more money to take it to the next level. Therefore, before approaching an investor, it is important to figure out the stage and size of investment vis-à-vis industry standards. Investors may also choose a project based on geography and industry segments. For instance, innovative technology might excite some while others might choose media or telecommunications sector.
Entrepreneurs always feel that their idea is the best and they want to execute it at the earliest. However, a more measured approach can increase your chances of success. You should be wary that marriages and investment partnerships are somewhat similar in terms of relationship, except that if things go wrong in the latter you are more likely to end up with a messy divorce. So let’s keep these five fundamental things in mind before choosing your investor:
1. Look to choose a partner rather than just a source of money. It’s the people who really matter at the end of the day, more than the money that they bring in. You need to look at the person with whom you can have a resolute partnership. Would you be able to share a mutual respect and a strong connection? You should ask yourself the proverbial island test: what would be your thoughts if you were stranded on an island with that person?
2. Try looking for investors who can add value to your business and fill in the gaps rather than just providing funds. The success of the partnership between entrepreneurs and VCs can be successful only when the latter contribute to the growth of the former and not when it is merely transactional.
3. How much time is the investor willing to invest in you? It is imperative to know that the investor joining hands with you have enough time and commitment towards your business. How many other boards is he on and what will be the frequency of communication.
4. The investor should know what to do and can prioritize. I believe that the investor has three most important missions when they steer towards funding a company.
a. Ensure that the strategy is correct
b. The company has the best team to execute this strategy.
c. The company will have enough funds to implement that strategy.
All other operations, resource management, and other added value are also important but they come after these three missions. If these missions are not clear, reviewed, aligned or prioritized the other values will have no significance. But there are investors who overlook these missions and are not capable of prioritizing it right. Having your investor with pure and only financial clout and experience might not be helpful.
5. This leads us to the final point of choosing a VC. VC can be the road to create pathways for future investors who see your small start-up even more worthwhile because of the connections you have. The right VC can bring in a lot of credibility to your business. Hence, it is not only significant for cash infusion but also for the better future of your startup.
So, it’s safe to say that don’t hesitate to reference check potential VCs. As an entrepreneur, it is as important to you to choose the right investor as it for an investor to choose the right business to fund.
A lot of people will tell you that cold pitching is not the best way of getting to a VC. The best way to engage with VC is by getting a warm introduction to someone from your network. An introduction from an existing known company is a strong signal for a VC. Your known contact will also tell you the quality of the investor. VCs may receive numerous emails on a daily basis. They only reply to a few emails from people they already know and it is not practically possible to entertain emails from people they don’t know. The investor won’t trusts you if he doesn’t know much about you. The category of the person who will introduce you to the VC is not as important as the nature of his relationship with the investor. The best introduction is through people with a good personal equation with the investor. To make an introduction to the investor, there are a few steps which you can keep in mind:
- Make a list of VCs / Investors you would like to be introduced.
- Go to portals like LinkedIn and read about the background of the investor. Is he the right partner you are looking for? Check your shared connections. This is the starting point. Then you can look at the shared connection and judge the nature of the relationship with the VC.
- After selecting the right shared connection, approach them individually to get yourself introduced.
In this way, you can get a warm introduction to the VC. If you fail to establish any common contact between you and the VC then you have to look for other ways/platform where you can approach VCs. Some of those ways could be:
1. Pitching Events: Make sure you turn up at major pitching events for networking. Get introduced to investors and make the right connections.
2. Crowdfunding sites: Crowdfunding sites will give you access to different types of investors – from the general public to philanthropist to known investors seeking to fund new ideas.
3. Online lending platforms: You can go for online lending platforms like peer to peer, nontraditional lending sources or even large investors looking to fund small businesses.
4. Accelerators: Mostly for beta stage startups, premium accelerator programs offer introductory mentor relationships that provide entrepreneurs the time to develop investor connections and demonstrate their potential before funding.
If none of the aforesaid approach ideas work for you, cold pitching could then be the last resort to reach out to investors. If you do a cold-call pitch to a Venture Capital (VC) investor using email, your proposal is already at the bottom of the pile. Your real funding request can also be classified as spam. However, if you do cold pitching, please find the list of 6 things which you should avoid and VCs absolutely hate:
1. Lengthy emails/pitches: VCs receive a lot of pitches and hence you should keep it as short as possible
2. Lack of numbers: Numbers are crucial for any fundraising activity and should always be reflected in your email pitch.
3. Too many attached files: For your pitch email avoid attaching unnecessary files and send only your pitch deck if required.
4. Don’t mention NDA: Mentioning NDA might rub the investor in the wrong way in the first place.
5. Spelling and Grammatical errors: Avoid any spelling and grammatical errors in your pitch email.
6. Pitch through social networking site: Many VCs are influencers and thought leaders on social media sites. Never sent your pitch through networking sites like Linkedin, Twitter etc. as it may be construed as unprofessional and therefore unacceptable.
It requires a lot of skill to write a cold email effectively. Most people have no clue how to format an email to get a response. If you can learn how to write a great cold email, you’ve put yourself far ahead of the competition. For start-ups, emails are a powerful tool that can help get funding. Creativity and persistence are the key elements of cold pitching. Every email has to be individualistic and personal and has to stand out on its own. Try to anticipate the questions the investor might have in mind and incorporate the answers briefly in your email. You don’t have to shout from the rooftops how special you are and how brilliant your idea is! You just need to be relaxed, professional and unique.
Money should not be your sole aim while cold pitching. That’s not going to happen, at least not through one email. The aim is to make an impression and feel like that you have thoroughly done your homework in choosing them and not randomly looked for funding. Most importantly they should be excited about your business idea. A few handy tips on how to cold-email investors are:
1. Keep it short and simple: It’s very important that your email reads the key points and nothing more. Highlight numbers, build rapport and end with a call to action.
2. Highlight your Company’s standout facts in bullets: Mention what’s best about your company in key bullet points to make it readable and stand out.
3. Formatting it right: Investors have very less time to go through emails by unknown faces. Not only your email should be concise, but the formatting should also be great so that one can easily get the key points just by glancing at it.
4. Avoid attaching pitch deck: Pitch deck is essential for the investor to get to know all about your business. But by attaching a pitch deck in your first email might not be a great idea as it might get caught in spam filters.
5. Email tracker: Use an email tracker to know whether and when your email was opened. This will help in further follow-up.
6. Clear call to action: Your call to action should always be to ask for an appointment or meeting. Cold emails will not give you the funds right away. Your appointment and meeting is the next clear step towards achieving your funding requirements.
7. Follow-up: Last but not the least, don’t hesitate to follow-up. VCs will get tons and tons of emails. It’s always good to follow up within a week so that nothing is missed out.
The reality is that fundraising is one difficult job. But don’t let that demotivate you as it is very much achievable if you do it with a right approach. It is similar to sales as you might need to do several investor meetings in order to close even one. This means that you’ll need to somehow get a lot of investor leads to pursue. Always chose warm intros, but if you don’t have that you have to go for cold email pitches. We have given you the details on how to approach an investor in both the scenarios. Give this a whirl; we hope it works for you. You can also go through our blog on “Golden rules of pitching to an investor” and visit our website www.pitttch.com for premium end-to-end presentation and design service.
Please leave in your feedback in our comments section. Your ideas, appreciation and critical evaluation are highly valuable to us!