In today’s world, finding the right investor is like searching for grain in a haystack – difficult and time-consuming. However, as difficult as it might be, finding the right investors is crucial for any startup.
Startup founders tend to flaunt the number of times they have heard “no” before finally finding the right investor for their startup. As normal as that might seem, you do not have to spend hundreds and thousands of hours behind finding the right investor for your startup.
An entrepreneur’s time is their most precious asset and so, you must not waste your time pitching the wrong investors. Your goal must be to secure funding without having to pitch to a lot of people.
In this article, we’ll discuss how to identify the right investors and some proven strategies that would help you find the right investors without having to spend a considerable amount of time behind it. But before that, let’s discuss why most entrepreneurs end up pitching to the wrong investorsf.
Why do most entrepreneurs pitch to the wrong investors?
One mistake most entrepreneurs make while securing funding is that they jump directly from curating a business plan to pitching to investors, missing a very important step in between, which is defining their ideal investor.
What most entrepreneurs fail to realize is that not all investors are the same. Just because a person has an investor tag with their name doesn’t mean that they would be interested to fund your startup.
Every investor has a strategy that helps them decide where to invest. This is called the investment thesis. And every investor has a different investment thesis for themselves.
The difference in the thesis evolves in many different ways – some investors might prefer a certain geographical location, some prefer service-based businesses, some product-based or some might make the decision based on the quarterly revenue of a company. It all depends on the investor.
Thus, most of the time entrepreneurs hear “No” because their startup does not fit into the investment thesis of the investor and not because something’s wrong with their startup.
So before pitching, you should make sure to define and identify your ideal investor and that your startup aligns with the investment thesis of that investor, which brings us to our next point.
How to identify the ideal investor for your startup?
Knowing who your ideal investor is would save you tons of time that you would have otherwise spent pitching to the wrong ones. Before looking for potential investors, you should set your investor goals straight.
Make sure you have the answers to questions like:
- What kind of expertise do you want them to have?
- How involved do you want them to be?
- How much equity are you willing to give up?
Next, curate a screening process to qualify any investor before actually pitching to them. But how would you know if someone’s the right person? Well, it’s simple. Google them.
You’d learn three kinds of information about an investor – Biographical data, historical data and philosophical data. Biographical data will help you know more about them and you can use it to find any ice-breaker that’d help you build a genuine connection. Historical data will tell you which startups they have invested in the past, thus telling you about their target industry. And lastly, the philosophical data will tell you what exactly goes in their minds before they decide to fund a startup.
Based on the information, you should make sure you and the investor are on the same page; at least regarding the few points mentioned below:
Your ideal investor would be someone who is in your target industry. It’s always a good idea to have an experienced entity with you while you’re venturing out. They need to be well-versed with the ups and downs of the industry and the risks associated with the industry. They won’t be able to understand your plans for your startup if they’re not familiar with your industry.
You obviously cannot approach a person for your finance startup if all they have invested in is medical or fashion.
Criteria for investing
Your startup should also fit into their criteria for investing. You can dig up information about the investor from their social media handles or from any podcast they were featured in, perhaps. This will tell you about what criteria they look into before deciding to invest in a startup.
If your startup doesn’t fit it, you can abstain from pitching to them at all. Thus, saving your valuable time.
Many investors prefer investing in local startups or a few hours away. Do a quick research on the investor and the type of geographical location they prefer.If it fits your startup, it’s well and good else don’t consider pitching to them.
For example as a Canadian you can’t pitch to an investor who only prefers Americans, right?
Additionally, you should prefer an investor who:
- Has considerable experience in the startup world and can help you identify and fill the gaps in your team.
- Has a record of making successful funding deals happen.
- You share some common interests with. If a potential investor is someone with whom you have common interests, it might help you build a human connection with them. This increases your chances of getting funding from them.
Well, by defining your ideal investors, you’ve already completed the tedious process of finding funding. Now, all you have to do is find investors, qualify them according to your needs, and pitch to them.
You can start finding investors by first asking in your inner circle of friends and family. Next, you can try finding investors on LinkedIn, Twitter, Google or other sites where your target investors hangout.
Once you find someone who qualifies as your ideal investor, reach out to them over email or any social networking site. Build a connection over any common grounds, pitch to them and if they agree? Well, congratulations! You would’ve just secured funding for your startup.
You should never feel disheartened if an investor denies funding. The problem doesn’t always lie in the business plan, your product might just not fulfill their investment thesis. It’s not you, it’s them.
To make sure you finalize a funding after pitching to just a few investors, you should consider qualifying a potential investor before actually pitching to them. I hope this guide helps you secure the funding you deserve!