Ready to Raise Capital? Start with the People Around You.
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Startups are in constant competition for two resources: capital and talent. Without capital, a business fails to exist. Without talent, a business fails to flourish.
If you’ve raised venture capital before, you already have some combination of a great product, a highly functioning team, and a growing market. So, how do you stand out in a competitive field of startups vying for VC capital? Relationships.
As our Program Manager Nicola Farrell wrote:
“Being a founder is as much a game of relationships as it is building a business that can scale. The relationships you maintain with your stakeholders can determine how far you go. Keeping in touch with the people who have backed you, is absolutely critical for maintaining a healthy company.”
At the end of the day, you are selling your company throughout the fundraising process. Why not treat it like a standard sales funnel?
In its simplest form, a traditional sales & marketing process can be broken into 3 steps:
- Attracting and adding qualified leads to your top of the funnel on a regular basis.
- Nurturing and moving the leads from through the funnel with the goal of closing them as a customer.
- Servicing customers and creating a great experience until they become evangelists or promoters.
Filling the Top of Your Fundraising Funnel
Unfortunately, your investor funnel likely does not come full of qualified investors. Yes, there will be warm network leads and investors who find you on their own, but it is vital to have a healthy funnel of investors. It is important to note here, that you are targeting highly qualified investors. Just as you would create a persona for your ideal customer in a traditional sales process, you should do the same for potential investors. It might look something like this (originally published in “Building Your Ideal Investor Persona”):
- Location — Where are you located? Do you need local investors? Or maybe you are looking for connections and networks in strategic geographies.
- Industry Focus — What type of company are you? Where should your future investors/partners be focused? e.g. If you’re a B2B SaaS company don’t waste your time with marketplace focused investors. Mark Suster suggests that it is best to prioritize investors with companies in your space.
- Stage Focus — What size check/round are you raising? e.g. If you’re raising a $1M seed round avoid a firm with $2B AUM. If you’re raising a $30M round, avoid a firm with $75M AUM.
- Current Portfolio — What type of companies should be a signal to you that they’re a good fit? Is there a high likelihood they’ve invested in one of your competitors? If so, best to avoid as they likely won’t double down their bet with a competitor to a portfolio co.
- Motivators — What do you want to get out of your investors and what do they want to get out of you? Do they need to match your values and culture?
- Deal Velocity — Are you in need of capital as soon as possible? Or are you taking your time and looking for strategic investors? Varying investors have different philosophies for the velocity they’re making deals. Point Nine Capital and Kima ventures are both regarded as top firms in Europe. However, Point Nine makes ~10 investments a year, whereas Kima makes 1–2 investments a week.
If you want to take it a step further, you can take one of Mark Suster’s playbook and rank your investors by levels:
“In terms of stack ranking, I recommend you force yourself to have no more than 8–10 A’s, 8–10 B’s and the balance 20–24 should be C’s. An ‘A’ is somebody who would be likely to invest in a company like yours and if chosen is somebody you’d be interested in working with.”
Nurturing Your Leads
Once you’ve honed in what your ideal investor looks like, it’s time to start the process of moving them through the funnel. A fundraising process is filled with frustrating rejections and maybes; it is vital to stay focused during this stage. Founders can use simple marketing tactics to stay fresh in the minds of investors. Just as you would nurture a sales or marketing lead with email campaigns, phone calls, and relatable content, the same should be done during the fundraising process.
This should not require a major chunk of time, maybe a couple of minutes a week. A quick note highlighting your company’s recent successes, changes in the market, and a key metric or two is a quick and easy way to stay top-of-mind for investors.
Leveraging Your Current Investors
Leveraging your current investors is arguably the most important aspect of raising capital from future investors. We can call this stage the customer success stage. There are 2 major reasons for leveraging your current investors.
- They have more capital.
- They know other investors.
As famed angel investor Jason Calacanis puts it:
“There is a really awesome reason to keep investors updated: they didn’t give you all of their money — they have more! They want to give you more! If you keep your investors engaged with honest updates they will reward you by participating in future rounds.”
By sending a regular monthly update, no matter how much or little information you share, you’ll already stand out in a crowded field. But what if you are looking to add on additional investors?
At the core, an investor’s job is to generate returns for their LPs, which rest on the shoulders of their portfolio’s success.
If you are targeting new investors, your current investors are likely keen to help with the process. But it is important to keep in mind that if you have not contacted an investor in months and are only asking them to make an intro to a new investor, your request probably won’t go over well.
“If your existing investors, even if they are angels, small VCs, whatever … don’t give you a 100.0000% positive reference … you may be dead in the next round. If I call up your existing angel investor, and she pauses when I ask what she thinks of you and the company … as a prospective investor for the next round, I’m probably out. Done.”
So looking to raise capital for your startup? Find a process that works for you and stick to it. Make sure your current investors are your biggest evangelists and let the process do its work as you focus on your day-to-day duties.