How to Approach Investors
You've done your research and have identified you are ready to fundraise, and what type of funding you are going after, so now you are ready to approach investors. Of course it’s great to have warm intros, but let’s face it, you are going to spend 90% of your time sending cold emails. Most investors are receptive to cold emails. The thing to keep in mind here is knowing the difference between cold emails and bad cold emails. and which
Here is an example of a bad cold email:
I came across your profile as I was researching investors online and I understand you invest in technology companies.
I’d love to talk to you about my company which is going to revolutionize the agriculture industry. Please let me know if you are open for lunch or coffee.
After reading it we have no idea what it is the founders actually do. Another big no-no with this email is they are asking for lunch or coffee which will require at least 30 minutes or an hour of my time.
Research investors before you reach out to them. Figure out how to make your email personable and genuine. You can learn a lot about an investor through their website, Linkedin profile, blogs or by the way they interact on social media. Talk to other entrepreneurs that may know the investor so you know what motivates them. And when you actually reach out, make sure you say exactly what it is that you do and never ask for more than 15 minutes of an investors time for an intro meeting. The investor’s job is to meet with startups, as many as possible, but in order to meet with a lot of startups they have to manage their time wisely. It is very unlikely that they’ll give you a full hour or even thirty minutes the first time around.
Here is a better way to approach investors.
I’m building a startup that connects individuals with health and wellness providers within a 10 mile radius. We’ve launched two months ago and have achieved recurring revenue, all while bootstrapping.
Given yours and Chris’ experience with Koko FitClub and your personal interest in investing in women entrepreneurs, I’d love to have 15 minutes of your time. Happy to email you my deck if that is better for you.
This founder did some research on us before reaching out. The founder knew prior to StitchCrew, we launched and helped scale a health and fitness startup. She also figured out I am particularly interested in investing in female entrepreneurs. She only asked for 15 minutes and kept the conversation open by offering to do it through email in case I was traveling or not able to meet in person.
What to expect when meeting with investors?
How you prepare will vary based on the type of meeting and the research you’ve done on the person you are presenting to. Here are the most common examples of the type of meetings and what investors expect to see.
Intro Meeting. Your first touch point will be an intro meeting or email. Don’t over do it here. Founders often overprepare when in reality all you really need is a super clear explanation of the idea. This is your Twitter Pitch. Research shows that you can either win or lose people's attention within the first few minutes of a meeting. You are not going to get a yes right away from your twitter pitch, but you can easily be discounted if you come across as someone that can’t articulate what you do. Be super, super clear. If you have a demo, bring it to the meeting. Investors love to interact with the actual product. Plus, once again, this shows progress and evidence that you are doing what you say you are going to do.
Follow-up Meeting. If you get past the intro meeting or email, expect a follow-up meeting to go over the specifics of your company – like your metrics. Even if you are a pre-launched company, you need to have a clear understanding of what metrics you are going to use to measure how your company is progressing. You also need to be able to explain your progress up to now. If you show up to the meeting saying that you’ve had this idea for two years and you’ve yet to launch, investors will question your ability to execute. On the contrary, if you’ve only had this idea for a couple of months and you already have a prototype, investors will know you are not a “wantrepreneur." Since you are likely to have more time than in the initial meeting, this is also a great time to dig a little bit deeper on why you are doing what you are doing.
Decision Meeting. Once you have the attention and interest of the investor, they will likely want to have a more serious meeting. This is where they will hopefully make a decision as to whether or not they will invest. This is when you will likely need a deck. When you get to this stage of building your deck, keep it simple. We’ve seen too many founders spend more time on their deck than building their product. Don’t be that founder. Customers don’t buy decks and investors don’t invest in decks, at least not good investors. Your deck doesn’t have to be long, keep it to 10-12 slides max, and have a clear story that is easy to follow. Another thing to keep in mind is that investors are going to want you to know your metrics cold. If you have to open a folder or a spreadsheet to pull your metrics, investors may count you off as someone who is not credible. Show up to these meetings knowing your revenue, how many active users you have, retention, churn, etc. The biggest thing to keep in mind is to paint the big picture. You want to be able to explain where your company is now, while painting the picture of what the biggest future can be.
Due Diligence Meetings. Once you get to the actual due diligence stage, you should have your legal docs in order, your financials (if you have them), your metrics dashboard, sales pipelines, etc. Check out this due diligence checklist to help you get started.
A couple of things to remember when you are going through this process.
Meetings do not equal progress. We talk to so many founders who are always meeting with people but they never close the deal or founders who always take meetings with investors because they perceive them as high profile investors. When you are a founder, the only thing that matters is that you are building a great company. So if you are meeting with investors when you don’t need to raise money, that’s a waste of your time because its taking you away from what actually matters which is building your company. If you are fundraising, avoid investors that want to meet over and over and never make a decision. Most investors hate saying no in fear that they are making a mistake and looking stupid for passing on an opportunity that could make them a lot of money. In our experience, the best investors are the ones that say no right away when the startup is not a right fit for their portfolio. These investors understand what it is they are looking for and they know that time is money so they don’t want to waste it. If you find yourself in a situation where you are going to meeting after meeting with an investor, know that nothing takes that long. Push the investor to make a decision by giving them a deadline.
Jerk investors. Let's say you get through all of these stages and you finally get to a closing meeting. Take what you’ve learned so far about the investor and decide whether or not they are someone you'd like to work with. Never put yourself in a position where you are so desperate for money that you’ll take anyone’s check. Make sure the people you are taking money from are not jerks. Once you get people on your cap table, you are pretty much stuck with them for the lifetime of your company. After you start meeting with people, ask yourself if you can see yourself working with the individual. If you can’t sit with someone for 15 minutes, 30 minutes, or an hour to talk about your business, you should think very carefully about taking their money.
Competitor diligence. There are investors who will meet with you just to do diligence on you because they’ve invested in a similar company. Every time you talk to an investor check out who they’ve invested in the past. If they’ve invested in a company that could potentially be your competitor, have an honest conversation with them before giving too much information.
Don’t design your business around VC. Too many founders orient their businesses around venture capital. Startups used to figure stuff out and then ask for money. Today, they ask for money to figure things out. Outside of drug discovery, aeronautical hardware or what is often referred to as deep tech, this is usually the wrong decision. In fact, making progress without resources is the best way to get VCs to take an interest in your company. Great companies who are smart about when and how they raise funding figure out how to do more with less. This enables them, when the time is right to go after fundraising, to pick their investors and set the terms. Now, our advice isn’t to try to bootstrap a business in perpetuity. Venture capital has powered nearly every major tech company. Just remember that you don’t need permission from funders to launch and scale a startup.