Spoiler alert: the key word is "correct", without understanding who your correct investor is, the answers to "how?" and where?" as useless as the numerous articles on this topic that you probably read, followed the recommendations and did not get results.
What's missing in this article
In this article there will be no promises that after reading it you will learn the Zen of fundraising, and even more so links to the website of the fund, which gives money to everyone indiscriminately, you just need to stay away from such people. There will be no examples of investment presentations and even advice on how to pitch at the level of God. No magic pills! Only practical recipes on how not to waste time on useless mailing of letters to hundreds of addresses, where they will be sent to the trash without even opening them. Let me explain why you shouldn't waste budgets in campaigns on crowdfunding platforms and go to all accelerators in a row, alternating with hackathons.
What's in this article
You've probably heard the story of how Sergey Brin and Larry Page, in 3 minutes while the elevator moved, told Andy Bechtolsheim about their project, who later wrote a check for $ 100,000, which made him a billionaire. If you think this is an accident and the guys are lucky, then you are wrong. This article outlines the work that needs to be done to increase the likelihood of such an event tenfold, as the founders of Google did.
Do you need an investor?
A startup involves investment. Perhaps the founders have not yet realized this or even disagree with this statement. But, as follows from the very definition of a startup, the likelihood that it will need an investor is very high and this follows from the need to find a sustainable business model. For this search, money is needed, which is given by an investor or one of the founders, in which case the latter also becomes an investor. Then, money is needed to scale this business model, then to conquer adjacent markets, then to IPO. And this is not counting pivots and many other adventures typical of startups, which are usually paid by an investor.
What not to do
There are a few general rules that most startups will need, with a few exceptions. Let's start with bad advice on how to waste energy in futile attempts to find an investor.
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- Crowdfunding platforms. Everyone has heard about the fantastic success of some projects on kickstarter. I suggest you google it using a search term like "top most successful kickstarter projects." Then compare your project with what a search engine will give you, then move on to the next item. Joke. There are cool projects there. But investors do not go to crowdfunding platforms, citing the fact that there is a lot of fraud and scam. According to various sources, the percentage of deliberately non-existent or fraudulent projects on crowdfunding sites can reach 50. Not a single sane person will take such risks.
What to do
Now about what every startup should do when preparing to search for an investor
- Prepare and always keep at hand: pitch-deck (presentation for the investor), financial model, executive summary
- Memorize an elevator pitch in English.
These are basic conditions that must be understood, without this there is no point in even starting a search for an investor. Everything that gets into any of these documents or in the elevator pitch should be based on the metrics of your project and demonstrate growth, if not sales, then at least audience growth. The growth should be interesting for the investor and reflect his interest in the growth of the value of your company at times per year. Accordingly, your metrics should grow in the range of 100%.
About the law of large numbers and fundraising
There are people who, not without reason, believe that the law of large numbers works everywhere. And, with a conversion unknown to them, like carpet bombing, they send cold letters to all the investors they can find. Why is this a bad decision? To begin with, this is a matter of elementary business ethics, it is just disrespect for a potential partner who sees a competitor's e-mail in the recipient's line, and instead of addressing by name, meets something like "dear colleague." But the main disadvantage of this approach is that it does not take into account the individual characteristics of a potential investor. Even if you hit a negligible percentage and one of hundreds of your letters got to the very same investor who suits your startup, he will not find anything in your presentation that takes into account exactly his interests, tastes, expertise and even his name, which is already said.
?
That's the thing, the moment when the realization of the need for an investor comes is always inappropriate. It's not even that the founders are often alien to planning and do not expect the moment when the money will run out. From this point of view, you should always start looking for an investor yesterday. The fact is that the search for an investor takes time directly from the founders of the company. And this is the most important resource for a startup, and it is always in short supply. For this reason, the question of who is the “right” investor for this particular startup is not given due attention. Usually, this question does not arise, which becomes the reason, if not the failure of the search, which is not the worst option, then a long series of unsuccessful attempts. The biggest failure will be the fact that you have entered into an investment agreement with the wrong investor you want.The network is full of stories about investors from the Russian mafia, and just from people who not only do not understand anything about venture investing, but even confident in their expertise, which is not only unnecessary for a startup, but also often harmful. But this is a topic for a separate article.
So, so that your investor does not ruin your company, and his search does not drag on until the very moment to avoid which they started (when the money runs out), and you need to know who to look for. The answer to the question "who is my correct investor?" will bring you very close to answering the question “how to find an investor as soon as possible?”, which in essence should be perceived as: how to find an investor before you close the company due to the fact that you have nothing to pay salaries, pay office rent, servers and everything else. I repeat, so that all this does not happen, look for your “right” investor, this will reduce the time spent on searches and save you from contacts with people who are more likely to harm your company with their money. So, the answer to the question "How to quickly find an investor?" sounds like: "Look for the right investor."
Who is the “right” investor?
To determine the portrait of the investor we need, we must understand that the investor himself is looking for startups - this is his job, his business. It is this fact that must be used. In an investor-startup relationship, there are two hunters and two loot, both of which play both roles. One who has realized this becomes a hunter. To prepare for the hunt, you need to complete 3 simple exercises
Examine the victim's habits
To determine where the animal you are hunting is found, you need to know its habits. Competent, and we are looking for just such, the investor clearly understands what projects he needs, in what area he is an expert and where he can help a portfolio project. Savvy investors have a fairly easy-to-describe profile. This very description of the investor profile is easy to get, for example, by looking at crunchbase.com or other similar resources. It is imperative to do this, 1 hour spent on this site will help you understand what investors are and how to classify them. Here you will find out which companies they are investing in:
- sectors of the economy, technologies, business models of interest to the investor
- geography of target markets of portfolio companies
- preferred startups life stage
- the check with which the investor most often or on average enters the deal.
All this is the description of your potential investor. For example, an investor invests mainly in companies in Round A, his average check is $ 1 million, half of the companies in his portfolio are companies that develop marketplaces in the Travel segment, and prefers startups that use Big Data technologies. Instead of an example, I propose to think about whether such an investor will turn to a company that makes, say, synthetic diamonds.
Camouflage
Unlike startups, an investor always realizes that he is a hunter and, accordingly, hunts for startups. We just found out how to find out which startups a particular investor is hunting for. Now let's disguise ourselves - let him think that he is the hunter, and you are the game. It’s not hard to guess that to be successful with a particular investor, your company must match his investment profile. Describe your startup using at least the following criteria:
- stage or stage of development of the company. This refers to Pre-Seed, Seed, Round A, B and so on. In fact, we are talking about an investment round.
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Naturally, we are talking about reliable information. At this stage, our goal is to take an understandable place in the investor's coordinate system, become visible to him, and meet his selection criteria.
Target sacrifice
Choose a suitable description of your company (see clause 2) for the most appropriate investment profile (see clause 1), and therefore an investor suitable for you. Obviously, the investor whose investment profile best fits the description of your project and will be the most suitable for you at the moment.
As an example, I propose to refer to the already described investor and company profiles from points 1 and 2 above. These examples, obviously, can serve as an example of a waste of time sending investment presentations by a company from point 2 to an investor from point 1.
A little about smart money
The right investor may be an angel, a fund, an accelerator, or maybe such an unprecedented beast as a family office, but it is important to understand that now this is the investor who is best able to work with companies like yours and will be able to help you as efficiently as possible leveraging its expertise and network of contacts in the industry. This is the very smart money that is often written about, but does not explain how and where to find it.
Is it time now?
Let's summarize:
- To find an investor as soon as possible - look for the "right" investor
- The right investor is the investor who is really an investor and suits your company at this stage.
- To understand who is right for your company, describe your company using the criteria that describe the investor's investment profile.
- Next, look for an investor with a similar investment profile, or at least with similar companies in the portfolio.
- Now, on the same crunchbase or angellist, we simply select suitable investors.
Now you know who you are hunting and where to find your prey. You have the names and coordinates of the persons you are interested in. Everything that happens next is just a matter of technology, however, like everything that we have done up to this point.
The better you know your investor, the easier it is to get hold of one.
Final preparations before the hunt
The question "when is it time to look for an investor?" we already raised, let's look at it from a different angle.
- We learned our homework, that is, we prepared the Pitch deck and memorized the elevator pitch, even practiced with friends and watched how people do it, for example, in VC Kitchen .
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Almost everything is ready. Do not forget that we are looking for a sane, smart, cunning, thoughtful investor. All these qualities should work for you and your project in the future. Such a cunning beast will surely, if interested, check you. We need to prepare. Put order in your social networks, especially in the most popular ones, or in those where the investor himself is present. As a rule, we hunt for a couple of dozen specific people, so beauty is worth looking everywhere. It also makes sense to create accounts for yourself and your startup on LinkedIn and angel.co. Do not forget to make at least a normal landing page with a description of the project, its mission, team, your expertise. Everything should inspire confidence in you, your team, its achievements and the startup itself. Consider that this is a landing net with which you will capture the caught fish.
Ready to meet with an investor?
Mandatory program completed. We now know how to prepare, how to recognize the right investor and where to look for one. What's next? Next, you need to select suitable candidates for the title of your investor. Taking into account our requirements, there are not so many of them, and if you want, for example, that the city where the headquarters of the fund you are interested in is located in the same place where you live, then there will be even less of them. In any case, now there is no need to rely on the law of large numbers. Indeed, everyone you write to is working with startups like yours.
Suppose you have accumulated two dozen surnames to whom you want to write or chat. Take your time, you did a great job to ruin everything at the last stage - it will always succeed.
Fundraising and kitesurfing, where the connection is!
Here's an example of Canva founder Melanie Perkins. After hundreds of refusals from investors and months spent on these refusals in Silicon Valley, the girl changed her approach to fundraising. One of her target investors, Bill Tai, was a huge kitesurf fan. And Melanie mastered this very kitesurfing, conquered the waves and the wind, as fans of this extreme entertainment say, in order to capture the attention of the investor and she succeeded. She not only showed and told Bill about her company, but also received an invitation from him to MaiTai Maui, an exclusive event hosted by Bill Tai for the players in the venture capital industry. One part of the program of the event was a kitesurfing competition, and the other was the opportunity to show Canva to a few more investors, but this time with Bill's recommendations, which is a completely different matter!The result was the closing of the Seed round and attracting $ 3 million from investors, including Bill Tai. For fun, I suggest you immediately google what Canva's rating is right now.
Maximum personalization
This is what I urge you to do. It doesn't matter if your prospective investor loves spaghetti or golf, conquered the South Pole on Captain Scott's route, or prefers to spend time with a cigar at the country club. All this you can find out about him simply from social networks, most likely, you are already familiar after a couple of handshakes. But answer yourself the question, what are you willing to do to give your startup a chance to make the world a little better?
There is no need to jump with a parachute, and even more so without it, just when you write a cold letter to an investor, refer to him by name and indicate that the reason why you are writing to him is the fact that you can be very useful to each other. If you, as if by chance, find yourself at a potters' party, which you both are or managed to become only yesterday, then you will have more than 3 minutes of his scattered attention. You will get an interlocutor with related views and a completely different level of empathy for you. Take advantage of this.
What is the result
Returning to Google, there is no point in reminding that the capitalization of this company exceeds $ 1 trillion. But to the check we talked about at the beginning, the founders were led by the work of finding the right candidates for investors. And in the beginning they came to the Stanford professor where they studied. They came, according to the official version, for advice. But you and I now know: kitesurfing, potters, etc. So Stanford professor David Cheriton became the first investor in Google, and then brought them together with the very Andy Bechtolsheim, whom they allegedly met by chance in an elevator.