Best Practices on how to approach investors during Covid-19
As the cliché says, this is exactly the right time for the best to prove how great they really are and to rise above all odds
Recruiting investors for early-stage startups is always challenging, even more so during these stressful times. The entire venture capital industry is more cautious, there is a lot of uncertainty, and risk in general is higher. As a result, investors handpick every company very carefully. As the cliché says, this is exactly the right time for the best to prove how great they really are and to rise above all odds, so that when a more positive tide comes, they can rise to the top.
Based on my experience as an investor who is regularly approached by founders at various stages, I have formulated some basic and important insights that can help you improve your chances of connecting with relevant investors and going through the first steps of contacting them.
Before contacting an investor, follow these preparatory steps:
It is always better to raise the first round of funds from “FFF” - the circle of people closest to you. Before you turn to investors, create a circle of associates who believe in you, and are willing to make an initial investment. Investors you reach will always ask you: has your immediate circle invested already and do they believe in you? They will ask this question to see if you have managed to sell yourself and your idea to the people closest to you.
International Accelerators - All founders want to find investors as soon as possible. Everyone is looking for certainty in the challenging world of entrepreneurship. When a startup that has already gone through a quality accelerator program approaches me, my tendency is to examine it more deeply. Therefore, you should join an accelerator, and preferably one from an international network, that will help you reach the first investors. There you will also receive basic toolkits and knowledge that will make you more prepared for the first investor check.
Invest in your storytelling and take the time to tell the story correctly. Think of it this way, a story that is told passionately generates greater motivation to delve deeper, it also says a lot about the founder’s sales capabilities. Another insight is to tell the story through team members and to start with them, since a significant part of an investor’s decision of whether to go ahead is the team and its composition. Beyond that, in early company stages and even later, the significance of the founding team becomes very critical. Therefore, you should start talking about the team members and their strengths. Also, provide as much data as possible about your venture.
Data is one of the most important elements - Data and numbers is a very broad topic, yet it can be said with certainty that most presentations without data get denied. Even in a very early stage, founders must know their domain and the industry in terms of numbers. Investors always prefer to get actual data from the company when it comes to quarterly and annual revenues, growth rate, customer pipelines and client names. Of course, there are entrepreneurs who pitch at the presentation and idea stage only, but those who do not have data and trends researched well… well, their chances of getting an investment go down dramatically. For me as an investor, the more accurate, comprehensive and broad the presentation of the numerical data, the more I understand that the founders are looking at all business aspects in a holistic way and are not just focused on product development.
How to approach?
You should always contact an industry acquaintance who will introduce you. Most founders are well acquainted with contacts in the venture capital industry or in tech companies, whether from work or family ties. When you pitch on your own, you can attest to yourself, your knowledge and experience. While this is very important, a cold call to investors is far more challenging than a warm call from someone who knows the investor from the industry. You do not have to choose the most senior person. A presentation through a third party can be good enough even if the presenter is, for example, an accelerator manager, a commander at Unit 8200 or an early client that wants to help you. For myself, when you contact me through a reputable source in the industry, my commitment to respond regarding the inquiry increases many times over, even if my answer is ultimately no.
Avoid generic inquiries - general and impersonal inquiries to investors lower your funding potential and your chances of success. Not only that, but being generic conveys the message that you do not care enough about the person you are addressing. There is no doubt that approaching investors requires time and resources, but your diligence and perseverance in the process also testifies to your endurance as an entrepreneur. The impression of investors is that those who are looking for shortcuts will not be able to withstand the pressures, management and burden involved when the company does grow. Establishing a startup is an ultramarathon for a commando unit that is about to compete with the biggest companies; there are no shortcuts.
Before the first meeting:
Learn as much as you can about the fund or investor - you are managing a startup, the load is heavy and the pressure is high, but that does not allow you to compromise on learning as much as possible about your potential investor. This is important for several reasons, the first of which is to know in which fields he is an expert and what interests him and no less - to understand how he can help you, besides the financial investment. For myself as an investor, the more I see that contacting me is personal and focused on my world of expertise, the better I can examine the relevance of the request.
Be ready for tough questions - a good investor will always have doubts and lots of them. He enters the investment in the early stages and the risks are many. For this reason, he will challenge you as much as he can to make sure he is making the right choice. You must maintain composure and professionalism and never take things personally, only professionally. Even if you did not get the investment then many times you got another angle of thinking about the market and the product. As an investor I tend to ask very deep and extensive questions because I want to ensure that even in the worst-case scenario, they will work day and night for the company to deal with every obstacle along the way.
After the first meeting:
Be matter-of-fact and concrete - an investor’s time is precious, at least as much as yours is, as a founder. Be brief, and approach them when you have news or updates. When you are in the advanced stages of completing a round, invite investors with whom you met previously, to join the round. For many investors, it is much easier to join a deal than to lead one.
Update and maintain continuous contact with investors - now that you have passed the first hurdle and managed to reach a meeting with the investor, make sure to update them when reaching significant milestones. After having decided that you are the right team, one of the things they would most like to see is that you make progress at great speed. When contacting an investor, do not ask "are you interested in investing?", as it is clear to both parties that this is the agenda, but rather try to get them to ask you if they could join the company as investors.
For me, even if I decided at the end of a meeting to hold on with my decision, any new or crucial statistic, or significant progress has the potential to reverse the decision. Another element I appreciate is tenacity and perseverance, if you have tried again and again, in an elegant way, it is sometimes a sign that you are a go-getter, and have the right attitude for the long journey.
The author is a serial entrepreneur, venture capitalist and has advised tech companies for 20 years.