Know Your Investors
Among one of the biggest issues new entrepreneurs face when trying to raise money, from both angel and venture capital investors, is not doing their research and getting to know their investors before approaching them. In my years tracking the high tech companies getting–and not getting–funding, particularly here in Southern California, I’ve noticed that those who get funding are those who cultivate a relationship and learn as much about investors before they approach them. How can you do that?
1. Identify the venture capital investors active in your market. Most (but not all) venture capital investors both have certain sectors and geographic areas they invest in. Approaching an investor who has never invested in your sector, and has never invested in your geographic area diminishes your chances (and fundraising effectiveness). We frequently cover in our news stories on those active investors; our members also have access to tools to specifically do this.
2. Use resources to see what deals venture firms have done before. We’re biased towards our own database of venture capital investors, but you can also do this by looking at the web sites of that venture capitalist; perusing news coverage on that investor; and tracing the board seats of those investors.
3. Identify the specific partners responsible for investments in your industry. Although venture firms (and every associate, principal, partners, etc. in those firms) tells you they will look at anything interesting, your odds of getting true interest are increased if you can identify the specific partner who has made investments in your kind of company in the past. For example, there are many a venture firm which make as diverse investments as clean technology, software-as-a-service, and consumer Internet/retail firms. Odds are, even though the partners and others in the firm may participate in sourcing those deals, there is a specific person at the firm with specialty and expertise in clean technology, SaaS, consumer/Internet, and so on.
4. Follow those investors. Figure out those investors you want to approach, as much as you are able (not all investors are easy to follow)–but if they have a Twitter stream, follow them. If they have a blog, subscribe to it. If they speak at conferences, go to those conferences. It’s amazing how much an investor gives his or her biases and opinions in those forums. (Examples are: investors who say they’ll NEVER invest in another social networking site, who are specifically interested in a sector, etc.) That kind of information is invaluable to know in pitching them.
5. Get to know your investors personally before you pitch them. Particularly in markets like Southern California, it’s important to get an introduction to those investors who might be interested in your company or you before you try to pitch them. This is not as hard as you might think, and this allows them to establish a personal relationship with you before you go into deep pitching (which brings a lot of baggage and issues). You can also introduce yourself at a conference, network with them at any of the many local technology events, and more. Particularly in the very early stages of your business (idea, prototyping, etc.) it can be helpful to establish a relationship well before you are ready to truly pitch your business–hopefully when it’s a little farther along and ready for some true capital.
Although there are plenty of other factors in getting or not getting funded (not to mention things like your business idea, how far along you are, your prior background, how much you are seeking, etc. etc.) — getting to know your potential investors is a huge part of successfully connecting with the capital you need to grow your company.
