#1 Take stock of where your startup is at, and what it most needs.
Getting the right investor isn’t just about capital. When fundraising, it should be a strategic move. Ask yourself these questions:
- What does my startup need to fulfil its vision, or even beyond that?
- Can my startup thrive while I’m fundraising, or will it be impacted by diminished focus of the distracted leadership team?
- Do I have the right fundraising materials?
#2 Focus your efforts on investors with higher probability of success
You might have a long list of possible investors, but it’s best to focus your energy on a few. Here’s how to whittle your options down.
Can the investor invest in my startup?
Does this investor have the ability to invest, right now? This depends on their available capital and the type of deal.
Find out where the fund is at and hopefully you’ll be in a sweet spot. Bear in mind, funds that have recently raised capital will be flush with cash, but might be entertaining options from many other startups who are also on the hunt. Conversely, funds close to the end of their investment cycle might be more conservative and you might not get the investment size you’re looking for.
The type of deal also has an impact on an investor’s willingness to invest in your startup. A deal type is characterized by size, funding source and amount of ownership. You can gauge your potential investors’ appetite by looking at past sources to see typical deal sizes.
Will the investor want to invest in my startup?
Doing your due diligence on this goes a long way to finding the right investor fit, especially in terms of a shared vision. This involves looking at their investment thesis, key geographies and understanding the stage of your company.
Many investors or VCs state upfront what stage of companies they’re looking to invest in, the geographies and sectors they’re focused on, and their investment thesis.
Let’s start with investment strategy, or commonly known as an investment thesis. The thesis shows you how they view the world and the changes they anticipate. Understanding their thesis will help when positioning your startup within their worldview.
Next, geography. Most investors have a geographic focus or specialty. It could be due to the concentration of resources or network in a particular locale, their preference for certain countries because of infrastructure maturity, or even tax incentives. Do your research on team or office locations, and identify where your investor inks most deals.
Third, if regional focus is less important, then take a look at their sector focus. For GGV Capital, for instance, Social/Internet, Enterprise Tech, and Smart Tech are our three areas of focus. If your startup fits the bill, try to size up their appetite for deals in your sector. Have they made any relevant investments? How are they faring?
Lastly, the stage of your company. Some VCs exclusively focus on seed-stage, others don’t. You can usually find this on their website. Don’t go knocking on doors that won’t open!
Do I want this investor for my startup?
This depends on your answers to #1.
Do you just want capital, or do you also need mentorship, leadership development, connections in specific regions and more?
Make sure you understand the expertise this investor is bringing and whether it adds value to your startup beyond the dollar amount.
Finally, ask around and get input from people who have either worked with or pitched to this particular investor.
#3 Keep communication lines open
As your startup expands and grows, you may have investors who suddenly fit the bill. Perhaps you were eyeing an investor or VC that was previously only focused on late-stage investing.
Our advice is to always build your network, but to be ruthlessly efficient about it. If you’re not ready to engage investors, keep the line warm with regular status updates, like major product releases, team changes and traction figures. This doesn’t have to happen on direct messaging platforms – even a LinkedIn or other social media update works (within the bounds of confidentiality of course). When the time comes, you can reach out to them, knowing that they’ve kept apprised of your startup’s developments.
This way, you’ll always have a pool of contacts ready for your next fundraising round.
Ready to start pitching? Read our guide on How To Pitch To Investor and be sure to also check out Questions A Good Investor Will Ask During Your Pitch. All the best!