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Beyond the Pitch

Six Tips for a Strong Start with Every Potential Investor

Investor

If we have one piece of advice for entrepreneurs, it’s be prepared to devote a significant portion of your time to fundraising.

And when it comes to fundraising, our second piece of advice is begin preparing for the process of fundraising long before the company is ready to seek or accept outside investment.

Perfect Your Pitch…Then Practice, Practice, Practice

Could you go home tonight and explain to your family the problem your company wants to solve in one sentence? That sentence is the single most important phrase in your investor presentation.

You must hook your audience right up front—it’s not like fishing, you don’t get more than one try.

As for the rest of the presentation, you must tell your story and tell it fast—in a way so compelling that your audience—typically busy investors who may well think they’ve heard it all—becomes personally motivated to help you and your business with their time, talent, and treasure.

So how do you create the best opportunity for your company so that all those hours of preparation and planning lead to the right investors for your business?

It Can Take 80 At-bats to Get a Hit

Just like you learn as much as you can about your potential customers, know your ideal investor. Investors have a target market, too, which is typically based on stage of company, sector/industry, geography, and preferred investment size. A venture fund or angel group may have additional emphasis, for example women or minority led businesses or university affiliations.

Start with investors in your own geography (local, state, region). Go to their websites. At a minimum, you can learn about their investment preferences. Some groups also provide information about their due diligence process, including timelines and steps.

When you identify potential investors that look like a fit, take a deeper dive. You want to figure out the state of the current fund. Does the group or fund invest alone, or do they prefer to syndicate? How does the firm work a deal? What is the process for engaging with portfolio companies?

These questions are best answered in conversations. This is the time to leverage the networking connections you’ve been building. Do you know anyone who knows anyone at the fund? Or at the fund’s portfolio companies? Talking to a company that the firm has invested in is a great source of information. Can you leverage your contacts to schedule a short meeting?

Alignment of Interests and Expectations is the Foundation of Investor Relationships

Entrepreneurs need to know what a target investor would want in terms of returns, relationship, and control. What are their typical terms? How much will they engage with their portfolio companies? Can they be a conduit for strategic partnerships or customers? Will they require one or more seats on the board?

Just as you want to know your investors, they will want to know all about you. Nothing, absolutely nothing, is more important to a potential investor than trust and confidence in the entrepreneur. They will validate your references. They will conduct background checks. Be assured if there is anything at all in your personal or professional history, they will discover it. If there is something that warrants explanation, better they learn it directly from you than from a third-part report.

Effective Communications with Current and Future Investors Is Key

It’s an old saw, but especially true in fundraising. You get only one chance to make a first impression. That first meeting is your opportunity to demonstrate your passion, drive, and track record.

The number one goal is to earn investor’s trust. Be transparent about opportunities and the risks that face the business. Answer the questions that are asked of you directly and succinctly. Avoid hyperbole and over-selling. Speak and act with complete integrity…always.

Keep your materials current. Have an up-to-date executive summary. Maintain historical and projected financial statements and keep your cap table and funding history complete and current. Have a brief non-confidential investor presentation at the ready. Set up an online data “room.” From day one, archive all legal documents, contracts, important reports, presentations, and studies. This will make the due diligence process go much more smoothly once investors are interested.

Most investors require (in the investment documents) periodic financial and operating updates. If they don’t bring it up first, ask.

Here’s a list of information to provide: business and technical milestones; financial and sales metrics; new hires; market and competition news, and product updates. Do what’s required, and then go a bit beyond. Cover big wins, setbacks, and opportunities.

Take early steps to avoid fire drills and re-inventing the wheel. There are tools that make the communications job easier, for example Visible.vc for investor updates or Constant Contact for email. Your accounting system can generate financial reports; employ a CRM system and use it to report on the company’s sales pipeline.

Distinguish your company from others in your investors’ portfolios. Help your investors become a great reference for your company. Build reasons for them to want to make follow-on investments. Your periodic updates are an opportunity to ask for help…and to say thanks.

Six Great Tips and a Caution

Building an excellent relationship with current and future investors overtime is the cornerstone of capital access planning.

Here are six tips for a strong start with every potential investor.

  • Develop relationships based on trust, shared expectations, and goals that align.
  • Seek investors with a track record of investing in your geography.
  • Warm introductions can save time and effort.
  • Every meeting matters. Even if it is only coffee, be at the top of your game
  • Investors generally don’t invest in August or December.
  • Current investors can help with future rounds—make sure they want to.

The caution: Don’t ever give your investors a reason to ask or even think about these questions:

  • Why don’t we ever hear from you?
  • Why do we hear from you only when you need money?
  • What are you asking me to sign?
  • You signed a term sheet that crushes us?
  • And the worst – Why didn’t you tell us earlier that you needed help?

Work with advisors who have raised capital before and understand the dynamics. From introductions to term sheets to board minutes, Rev1’s startup studio approach provides entrepreneurs and startups with the help they need when they need it. Contact us to learn more.

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