- Can't raise a fund?
- Don't understand where and how to look for investors?
- Have you met with 5-10 investors and only got refusals or silence?
- Talking and meeting, spending months of your time, but no investment has ever arrived on your account?
- Do you feel that your pitch deck and other materials are not enough good and therefore no one is interested?
- Do you have a really cool product and team, but investors don't realize it?
If you answered yes to any of these questions, this is the article for you! Read it completely and carefully up to the end! We hold 20 meetings every day with founders and owners who want to raise investments. We noticed they have the same problems! You are not alone. And that's why I decided to write this article for you.
Before IPN founders raised and selling businesses for several million dollars.
Startup teams have three issues:
- You do not know where to look for investors.
- You don't know how to communicate with investors.
- You are not enough prepared to demonstrate your professionalism and willingness to lead a startup to success.
It is simple. Writing about these issues, I mean that at the same time you have a really cool product, you believe in yourself, and you and your team precisely understand why you need money. If not, this is a topic for a separate article.
So, if you still have no investments then let's break down each of these three issues in details.
Issue 1. You don't know where to look for investorsThere are plenty of them. Type the title "investor" into the LinkedIn in the Sales Navigator and you get 210,000 people all over the world.
I will not write now trivial advice like go to the accelerators, or take money from friends or post on sites such as AngelList or CrunchBase. This is the ordinary path, you know how to follow this path without me.
You're failing to find your perfect investor because you don't know - WHO IS HE? You haven't even thought about this or formulated who is your ideal investor? It is important since he will be your business partner for several years. So, right now please write on the blanc piece of paper: "My Ideal Investor is…" - and then describe that person:
- Who is he? - Angel investor professional, private investor, businessman who invests periodically, fund representative, or top manager of the corporation, etc.
- Define what role he will play in your business? Will he be actively involved in the operational management or strategic only? Will he provide you with other resources than money?
- How much will he actively monitor the business? Is it enough for him to get a report once a quarter or will he shake you down every day? How deeply will he dive into each topic and keep you on a leash?
- Will it be the only investor or syndicate of angels?
- What industry will this person be from?
- What region is he from? Is he from America? Or Europe? Asia? Does it fit your mentality? Will he understand you? Does he speak the same language?
- What kind of experience does he have? Did he already lost his investments before? Will he be distrustful of you by default? Or is this his first or second investment, so it will be a new adventure for him?
- What is his risk perception?
- Even describe his character and hobby to make sure he suits you (by the way, a hobby can also tell you where you can find him).
I'm sure you get the point.
You need to be clear about who your ideal investor is. You must literally realize in details, what kind of person he is and how he makes decisions and conduct business. Your task is to literally create the future by creating an ideal picture, and then start to act and make it a reality. This is not esotericism, this is how human psychology works.
Then, you have to learn the rule number one: YOU SHOULD CHOOSE AN INVESTOR, not vice versa. Your investor is your partner, not just a wallet with money. You will cooperate with him for many years. Thus, first of all, you must understand what kind of investor and partner you want to have for years.
Once you do this, you will immediately have a complete understanding of where to look for such people. Your efforts now will be focused. You will not send your deck to various marketplaces, persons, funds, angels, etc. Now you are looking for certain places where your ideal investor can be. Your cover letters, short video pitch, other materials will be specifically prepared for such kind of person. And believe me, this person will react properly when he gets these materials because you have prepared them exactly for him.
By the way, one of the places where you can find the individual investors is LinkedIn. Having the subscription to the Sales Navigator, you can find the best suit person according to your criteria. (This is not an advertisement, just a tip.)
I believe, the first issue is solved. Let's move on.
Issue 2: You don't know how to communicate with investors90% of founders don’t know how to communicate with investors. They do it with the following mindset:
- I have to convince the investor that I'm awesome and I have a great company.
- There are so few investors and they are so unreachable, so what a great blessing that he at least listens and responds to me.
- Investor has so many offers, and I have to make him like me.
- Money is so important, and he has money, so he is an important person.
This approach is felt everywhere. "Please see our Pitch Deck" we are such a cool and promising startup. We are the best team! That is what everyone says! How are you differ from other startups? By nothing. The investor with a bored face throws your pitch deck into the virtual garbage can and moves on.
To prevent this from happening, change your mindset and approach:
- I already have a company / product / business / cool idea / team, so let the investor convince me that he will be the right partner in our business.
- There are a lot of investors, but I only need my ideal one, so I have to choose him.
- Money is just one of the resources. But I have a team, a product, technology, energy and time. Money is only part of success.
- I am an active entrepreneur, he is an active investor, he and I are equal partners who respect each other.
Thus, now you are in another position which is an equal partner. Psychologically, investors feel such approach.
There is one mistake of founders that I have to warn now. A lot of founders consider that raising the investment is the most important goal. To be a partner with investor you need to shift your focus to further lean consumption of funds after raising investments.
Please, don't forget about gradualism. You don't have to send him your long pitch deck and burden him with unnecessary information.
The ideal order of communication with the investor is the following:
- A short message - show the gist, hook and reveal interest.
- Send a short deck with brief information to lead further an e-meeting.
- Initial meeting where you have to understand if you are suitable for each other.
- If yes, do not forget to sign the NDA and only then provide confidential information.
- Subsequent meetings in partnership manner where you discuss not only the deal flow itself but future collaboration. Here you are either more and more convinced that you are ideally match each other, or you realize that not.
- You start deal on terms that are convenient for everyone.
Then success is assured. It was with this thinking and approach I raised my first venture capital investment in my project $50k within 1 month. Everything happened exactly as I prescribed in my ideal picture. Moreover, now I immediately pinpoint the founders who have such a way of thinking and I immediately like them.
Issue 3: You are not enough prepared to demonstrate your professionalism and willingness to lead a startup to successYou think a pitch deck and a brief 3 years financial projection is enough? You are wrong. An investor wants to understand:
a) that you imagine how to build a business;
b) that you won't waste his money;
c) that you know the risks of the business and know how to mitigate them and react;
d) that you have a long-term vision;
e) that you take responsibility for the project and attracted money, not just "trying it out”;
f) that your dreams, plans, and goals are backed by facts, not just your thoughts;
g) that you exactly know how to sale your product and you have a proven sales & marketing strategy.
Moreover, you must clearly understand your own fundraising strategy and be prepared to answer the following questions to the investor (maybe even at the first meeting):
- What is the EXACT amount of the investment? If you are talking the range it means you don’t have precise plan how to launch your startup.
- What is the value of your business and how did you evaluate it?
- Is it possible to split the investment in several tranches? If not, you should clearly explain why not.
- What stake in equity will he get for this investment? Any other benefits?
- How the investments will be legally structured and secured?
- What income will he get (short/long term)?
- When will he return his investments?
- What capital multiplication and over what period will he receive?
- Do you have exit strategy for him?
So ideally, he needs to see the following materials:
- a short deck;
- NDA template;
- investor deck;
- offer to investor;
- risk assessment and sensitive analysis;
- market and competition assessment;
- financial model incl. PL & DCF (a spreadsheet where he can spin the numbers in the model himself and calculate different options);
- investment agreement or other agreement according to your own fundraising strategy;
- business valuation report.
If your ideal investor (it doesn't matter if he is a professional angel or a fund or a novice investor or even your friend) sees this level of preparation, you will be very different from 97% of other founders. At least, during this preparation you will get a lot of insights and much better understanding of your own business. It shows your professionalism, long-term approach and intention that you want to build a great company.
If you agree with me give me a "like", please ;)
If you are looking for investments and you are confident with your startup we at IPN can help you. We are community of over 100+ investors & angels, and up to 200 private equity funds & family offices. We can share with you what we need for taking favor decision but you have to be ready to work hardly. Believe me, it's worth it.