The road to Seed Stage investment doesn't have to be complicated. In our latest blog series, Brooke Richardson our Investments Director in EMEA for our First Ticket Product-Led Growth Program offers a comprehensive step by step guide for founders to best navigate the journey. In this second post, we explore how to filter through investors to find the right one for you.
At this point, you have your pitch deck primed and ready to share with investors, but how do you find them? Sure, you could hope that someone serendipitously stumbles across your profile, but that approach takes time and doesn't cast the widest net. As an entrepreneur, you need to actively network.
Is the VC route right for you? 🛣️
First, let’s take a step back and understand your motivations behind seeking an investment in the first place. It is important to know if you want to go the VC route or if you prefer to bootstrap your business by running a lean operation, prioritizing profitability over growth, and relying on little to no outside investments. Each case is appropriate for different startups and founders. On the other hand, if you believe your business can generate exponential growth and has the potential to become the next Unicorn, then the VC route is for you. Do keep in mind how VCs make money, like Babe Ruth, one of the greatest baseball stars (if not the best!) once said, “I swing big, with everything I've got. I hit big or I miss big.” This is how VCs operate as they make big plays to generate the appropriate returns. If your market is too niche, even if it is a great opportunity, it will be difficult to play in this space.
Investor Matchmaking 🤝
Before diving in, it's time for some self-reflection: you should carefully consider and ask yourself who is your ideal investor. Is it someone with industry connections, a large network of potential clients, product knowledge or growth expertise? It is important to think through this before determining who to outreach to. Money can of course support growth, but at the early stage it is even more important to focus on SMART money based on your needs - investors that go beyond just the investment and will become an extension of your C-level team or help in an advisory capacity.
The Right Amount of Funding 💸
You also need to understand how much money you will be asking for. Check out Fernando Del Re, Partner of First Ticket, EMEA at TheVentureCity, article here to see why you need to run a lean ship and raise the right amount of capital at the right time. The amount of money you raise should always be in congruence with the goals you want to achieve. For example, if you want to reach 100k customers, how much funding will you need? If you want to achieve 1M ARR, how much will you need? Think in terms of building your team, technology, cost of acquisition, etc. Be wary of investing too much money when your product doesn’t have strong retention or signs of product-market fit. You can use funds to test and determine the correct distribution-channel fit, but you want to make sure you aren't pouring water into a leaky bucket and that your users are actually sticking with you. See here why retention is more important than acquiring users. If you want to learn more about product-market fit, you can see Andrés Fajardo's, our VP of Product at TheVentureCity, article here.
List your investor picks 📝
Now that we have those disclaimers out of the way, on to finding your next investor. You should view the fundraising process as a sales funnel and begin curating a list of investors or VCs that invest in the stage and vertical you are in. Start by making a list of investors or VCs that are active in your vertical or location - you can find them on LinkedIn or Crunchbase or from referrals from friends. At this stage, it doesn't matter how loose your connection may be to them, you just want to curate a list of as many investors in your space as possible - remember, finding investors is a numbers game.
Then look at when these investors tend to get involved in rounds. On average, a funding round can take between six and nine months, so you need to reach out ASAP to the people who invest early on. These are the investors that will need the most nurturing as you'll have to keep them updated on your project and funding targets, and make them feel that you're giving them an early bird's eye view of your company. Prioritize these investors if they align with your startup's mission and fundraising needs.
Find a middle(wo)man to help 👩🏻👨🏽
The next steps are much like dating. You're at a party and someone catches your eye at the bar. You could wait for them to meet you on the dance floor, you could approach them yourself, or you could wait to see if you have a mutual friend who can organically bring you together.
It's the same with investors. Warm introductions lower the risk for investors because you can leverage the trust they already have with your common connection. Devote some time to researching who the investor has worked with in the past, events they've been to, programs they've taken, and who they're connected with on LinkedIn. You're bound to discover someone you've overlapped with who can facilitate a conversation.
Make yourself relevant 😎
When you do decide to reach out to investors, keep it succinct and always include your pitch deck alongside your message. Mention your mutual connection early on, and state your relationship to the other person, as well as anything they have said that reinforces why you're a good match to the investor. For example, "X told me that you're interested in AI-backed, female-led startups, which is exactly what I'm building." It's also worthwhile checking out their website beforehand, to mirror some of the wording they use, or to explain how you share their values - similar to how you would prepare for a job interview.
Finding the right investor takes time, energy, and a lot of research. Remember, this is an endurance game and you will get a lot of no’s along the way (maybe not if you are part of the lucky few), but it is important to learn from each and every conversation - remember these are business decisions. Learn from the conversations, adapt or remember that an investor's opinion is, just that, an opinion. The best way to prove your business is through traction.
Just as you would spend hours flipping through dating profiles, gauging if someone is a good pairing, you have to do the same with investors, and you have to be ready to explain why you should be their next significant other.
Be creative, be bold, go after the 💸! 🙌