Here we’ll go into tips for building an investor pipeline, how to manage the investment sales process, and how you can leverage momentum and scarcity to close your seed funding round or land that big investor you’ve been looking for. I will also share some tactics I learned from Techstars.
Step 1: Get ready—materials and meetings
Just like building a sales process, without enough pipeline you won’t be able to hit your monthly numbers. This list should include anyone you think will be relevant to your business.
You can rank them by the type of investments they do (a lead investor—someone who sets the investment terms for your round, or follow on—someone who participates in your round), and ultimately prioritize them by how well they can help move your business forward (expertise in industry, help they provide with hiring or strategic partnerships, and so on).
There are several good templates you can use for setting up this pipeline. Here’s one that we based ours on.
Everyone knows you need to have your slides ready to send off after the meeting, but most folks wait to make an intro meeting until after the deck is sent.
Do not expect any seed investor to look at your slides prior to the first meeting. In terms of getting your deck off the ground, here are some sample slide decks you can use as a model. I personally recommend using Front’s deck from their 10M A round to think about what you need to communicate about your business. Bplans also offers a free pitch deck template to help you get started.
Prime the pump
Even before starting your seed funding round, you’ll want to network with the investors at least locally in your community.
Remember, you are not raising funding at this point. You’re just curious as to what it takes for them to get excited about an opportunity. If you had those same characteristics as the other companies they’ve worked with (traction, market, stage) would they do a deal with you? If not, what is their feedback on your business? Are there certain questions that keep coming up? How can you get out in front of them?
Step 2: Get set—book those meetings and start connecting
Now that you’re ready to start reaching out to investors, you don’t want to hit every investor at once. For starters, you won’t be able to really tailor a good message in an email blast, and it will end up sounding like you’re selling oatmeal.
The other thought here is if folks ask who else you’re talking to, they don’t want to hear that you’re talking everyone. I’d recommend reaching out to small cohorts of investors—approximately 10 or so, depending on how big your pipeline is. Your goal should be to close them out (yes/no) within two weeks.
Do not include all your high priority investors (top tier funds can have partners in your space or be the big names you want to get in front of, a16z.com) in this first wave of outreach, as your pitch will adapt and continue to get better over time. We had a ratio of about 30 percent top-tier investors in any given cohort.
In terms of reaching out—you might be wondering how you can connect with funds and investors that you haven’t met yet. Do not cold call or email or through a general submission page on their website.
Get an intro
Not all investor intros are created equal. The easiest way to meet an investor you don’t personally know is via an intro from a contact you have in common. The best way to get connected is through other entrepreneurs they’ve invested in previously, other venture partners they’ve worked with in the past (the ones that will invest in you), entrepreneurs they know well in the community, and accelerator program connections.
We were in the Techstars Cloud program which essentially put us a heartbeat away from any technology investor we could think of. If you do not have many connections, I’d recommend getting more involved in your startup community or strongly consider a network driven accelerator program.
Step 3: Go, meet, qualify, close
Do your homework. Is this particular investor someone that wants to walk through the slides or have more of a conversation? Know your strengths. Are you better at being conversational or do you need to follow a set agenda?
At the end of the meeting be sure to ask if this type of business is something they’re interested in. If the answer is no, find out why. If it’s a yes, find out what the next steps are. Always leave the meeting with next steps. Ask about the decision process (who is involved) and timeline. This will help you update your pipeline with relevant notes after the meeting and have reasonable expectations. Some groups group might be too slow given your timeline.
Make it easy to say yes
Instead of flying off the handle when an investor asks if you would relocate or if your business would consider market X, hear them out. No is an easy answer that you can always come back to, but if you listen, you’ll learn.
At the very least you’ll learn if this point is a deal breaker or more of a random thought. At best, you can get solid market insight or connections to potential partners/team members. Almost every investor you approach for seed funding will have some objections or deal breakers; it is your job to identify them, and ask if they would work with you if you can meet those requirements. If not, move on. If yes, then you have a low-level commitment and are one step closer to closing.
Momentum is either your biggest asset or greatest weakness. The right partner signaling interest can help you attract others to fill out a seed round, while headwinds coming straight at you can have the opposite effect. How can you make sure you build the right kind of momentum?
Target less and oversubscribe
Companies that target smaller amounts of seed funding have a higher probability of not only completing their round but also raising more than their goal. What? To get more you asked for less. How can that possibly work?
It works because of optionality
You see, it’s your job as a founder to keep as many options open for your company for as long as feasibly possible. This means you try to maximize your time or your learning so that when you make your decision, you have the most information available. Guess what? That’s the investor’s job as well.
They need to keep their options open
They want a spot in your deal if they decide that they want it. They will walk with you right up to the line where they will invest if they’re interested. Getting them to cross that line is the tough part.
However, when the round is small and it’s easier for you to get commitments, there really isn’t much opportunity to wait around. You need to make a move if you want to get in on the deal. This is the advantage of having a smaller round and oversubscribing—it acts as a forcing function to find out who is serious and who is not.
With these tips in mind, we raised two rounds of seed funding in less than 60 days. But remember, optimizing your financing for speed is not always the best route. You may miss out on the opportunity to work with a great partner or end up with a lower valuation than you’d like.
Never forget—a startup is like driving on a long highway in the desert. Your tank is almost always on E, your next stop is within 200 miles. You can make it.