How to Get the Right Investor for Your Startup

How to Get the Right Investor for Your Startup

Oct 06, 2023 02:15 PM

Funding Guide

Today, in this blog, we will concentrate on the process of finding investors and the best way to determine the investors you want to be spending your time with. In this series, we started by figuring out the amount of capital your startup needs by making a calculation of the runway for your startup.

We then looked at the advantages and disadvantages of the various sources of financing.

Then, we took an examination of the venture capital market and startups' funding rounds. We also discussed how to properly divide your equity among advisors, employees, and co-founders. If you've made the decision to get venture capitalist (VC) funds and are considering raising VC funds, it's time to be practical and determine how to locate the most suitable investors on the proper terms.

Before we discuss how to identify the best investors, let's first decide if it's the right time to enter the mode of fundraising right now.

Fundraising: ON or OFF?

There are two primary reasons to invest in startup equity. You either really require it to move to the next stage (or, in general, to stay alive) or the capital is readily available in good condition and you wish to capitalize in order to get a competitive advantage.

Be sure to not lose sight of the reason you're doing this. Fundraising isn't a gauge of your startup's success. It's a tool you can use to create an organization that your customers will love. It will bring about growth, profitability in return on capital investment, and ultimately shareholder value. It is merely a tool, not a final end in itself.

The issue with fundraising is that it has a tendency to be the first priority on your list of priorities. This can be very distracting for your business and prevents your ability to develop great products. For us, fundraising consists of two distinct phases. A networking mode as well as an option for fundraising.

Networking mode

If you're not fundraising, you should be focusing on building your network and thinking about opportunistic funds. It is money that needs no convincing from investors who are willing to invest on conditions that require no negotiations.

Make sure you are very strict about this, which is essentially no meetings and very quick execution. This shouldn't take away from the main focus of your company. This is only for investors with whom you already have a relationship who have done due diligence and are prepared to sign a contract right away because they're keen to join.

If that is not the case, then politely turn down any meeting. Inform investors that you're extremely focused on developing the business. Keep them warm by providing regular status updates. These could include things like the following:

  • Figures of Traction

  • Team members change

  • Features milestones

  • A heads-up about the future rounds of financing

Be wary of investors who are trying to get you into fundraising mode. If you are an investor, this could be a fantastic opportunity to get an investment since they'll have a chance to get you prior to anyone else (also known as "proprietary deals").

Before you realize it, you're having meetings every two weeks and losing focus on your work. Keep them warm by providing regular updates and sharing your successes.

Fundraising mode/h6>

If you're engaged in the fundraising phase, get all-in. Make sure you complete this task as effectively as you can. In reality, you can anticipate being engaged in fundraising for between 4 and 6 months.

This is the perfect time to make use of having co-founders from multiple companies. Divide and conquer. Keep one founder focused on the business and leading the team, and the second founder focused on finding investors and rushing around from one meeting to the next.

There are times when investors wish to meet the founders of both companies. But make sure to limit these to situations with a high likelihood. Investors prefer to be patient and are prone to waiting. If, during the waiting period, your company is able to run smoothly during these times of waiting, it greatly improves your odds of receiving financing.

Before you dive into investing, you should ask yourself these questions:

  • What is the reason you are raising funds at this time? Are market conditions favorable, or do you need capital when you are close to the final stretch of the runway?

  • What is your company's image considered by investors at the present stage?

  • Do you have an engaging story to share with investors?

  • Will your company continue to prosper throughout the fundraising phase (4-6 months) despite a decrease in interest from your end?

  • Are you using the correct fundraising materials? (More about that later.)

Find investors: Sort your list of Investors to Create a Target List

Funding Guide

We have now compiled an extensive list of investors to consider. We must find the best way to prioritize those who have the best chance of succeeding.

Like sales, let's transform our longer lists into a shorter list of goals.

The process of assessing the potential of investors is similar to judging a potential buyer's interest in your product. There are three main questions to ask:

Does the investor have an interest in my business?

Does the investor have the right to invest in my business?

Does my company have a desire to be this investor?

Does the investor have an interest in my business?

How can you tell whether all the names in this massive group have an interest in my business?

Well, you can't. If you conduct a specific study, you'll realize that a large number of investors are seeking particular items. If you don't meet these criteria, the likelihood of investing is extremely low.

Let's put ourselves in their position and then make a preliminary decision on whether we'd be unfit or a good fit.

Stages of your company

First, determine whether an investor in your startupis interested in the companies at your stage. Have a look at the post on startups' financing rounds for a quick start. the pace. Typically, this information is accessible via the investor's website.

Once you've determined that they might have an interest in businesses at your stage, you should look for recent deals and particularly for deals that are relevant (e.g., similar stage). An excellent resource to locate recent deals is the investor's website as well as databases. The more similar investments you discover to yours, the greater the likelihood that they'll be attracted.

Your company's location

Investors tend to be concentrated in a specific geographic area.

It could be because they are allowed to attend board meetings since they receive tax incentives for doing so, or for a similar reason.

It could be the entire company, or they could collaborate with local teams that have a particular focus.

Check their website to find out more about their investment strategies, including team locations and funds with an international concentration. If your area is part of it, take a look at their latest deals. If you are looking for a mobile app development company in Dubai, then there is no better choice than PerfectionGeeks.

In certain industries, regional areas of focus may not be as crucial. Be sure to distinguish between investors who do not make investments in a particular region because of their approach and those who aren't yet able to make a purchase in the region of interest.

Your industry is attracting your attention.

In addition to geography, lots of funds also concentrate on certain sectors. Usually, this information is readily available on the investor's web site.

If you're in line with their criteria, then try to assess their willingness to invest in deals in your industry. Look over recent deals (12 to 24 months) and determine whether they've made suitable investments.

If you notice that there's been less activity in the fund as compared to the past, be sure to check for recent changes to the team or press announcements.

It could be the case that the fund has lost a partner who is knowledgeable in a particular field or has recently formed a team for a brand new area (which could be fascinating), or perhaps there isn't any interest in investing in your field.

TIP: When a partner in the same sector decides to leave, be sure you follow their movements since their next step could be interesting to you.

Criteria for a second selection round

The following topics are difficult to study and should be considered after you have a list:

The investment thesis

Investors usually hold a particular view of this world as well as how it is likely to change in the near term. For instance, they may be considering the transition from ownership to service, which is important in the case of trying to sell them via the basis of a car as a service versus an auction or second-hand car marketplace.

Knowing this is crucial when presenting to them as well as when you decide on the most important priorities. It could take a bit of research, and investors may differ within a business, so be sure to concentrate on your top-rated list when looking into this.

Relevant deals

It's likely that this topic came up in your research, but it could be helpful to look deeper into the most popular candidates. Find out whether the investor is in investments that are conflicting (e.g., direct competitors or substitutes) or has a close relationship with a company in your field.

If they're in your field, try to figure out what these deals are doing for them. Be cautious in the event that these investments are an enormous failure, since their interest in the industry may have decreased significantly. If they're invested in a competitor, you should be mindful because they could transfer your paperwork to the portfolio company they have invested in after your pitch.

The Aim is to Use Your Time in a way that is Efficient, Not Search for the Perfect Investor

There are plenty of potential investors, and you'll need a methodical approach to determine the ones you want to invest the most time with.

The aim, however, is not to devote three months to research and then reduce it to a quantitative conclusion that is based on Google research.

Be realistic about your expectations about what you can expect from your sources, and do not underestimate the value of the information you will get from your networks.

Be sure there aren't any obvious mistakes when evaluating potential investors (see above) to ensure that you don't get a flood of emails similar to this one or that you have an easily manageable list of investors you could be interested in.

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