How to approach Investors

When you’re on the hunt for funding, it’s natural that you want to get things moving as quickly as possible. However, identifying and approaching the right investor should be a measured process. Blasting the same quick email to a dozen investors will never work in your favor.

The average investor receives hundreds of pitches each month – making your approach all the more critical. In my experience, there are four key ways to improve your chances when approaching investors:

1. Get a warm introduction from a trusted source

Identify the strongest “in” to the particular investor. This often means not jumping on the first person who can introduce you. The best introductions come from people who have brought good deal flows to investors in the past. Savvy entrepreneurs put in the time doing their due diligence on potential connections and then ask the strongest connector for the introduction.

Speaking of referrals, you don’t want to be introduced by an investor who has passed on you. Whenever one investor gets a referral from another investor, their very first question will be “are you investing?” As the entrepreneur, you need the answer to help, not hurt, your case. The one exception to this rule is if the investor making the introduction has a completely different investment focus than your company and there’s a clear reason why he/she is not investing.

2. Build a relationship over time

If your network isn’t strong enough to provide a warm introduction from a strong source, you’ll need to build your own relationship with the investor over time. Interact with the investor through social media: follow them on Twitter, read their blog and make thoughtful comments. However, never comment on a blog post just for the sake of getting your name out there. Only comment when you’ll be adding value and relevance to the conversation.

3. Ask for advice, rather than money

Most investors are not looking to write a check right away, so you should get in touch with them well before you are raising a round. Initially, you can approach an investor soliciting advice on something specific, such as feedback on your marketing & sales approach, business model, or long-term product vision. Then, if it makes sense, execute on the investor’s feedback and circle back after, always showing your appreciation for their guidance.

4. Be personal

The most important rule is to only target investors when your company fits their specific area(s) of focus. Otherwise, you’ll be wasting your time (and theirs). Research a potential investor’s current portfolio. Read their blog posts and Twitter stream. And, when you do reach out, be specific in your communications. Just like in the job search, generic emails that could be sent to anyone are ineffective. Show how you understand each investor’s areas of interest, strategic vision, etc.

If you choose to seek funding, remember that it takes patience, and lots of preparation. There’s rarely a shortcut to easy money, so be ready to develop your strategy and put in the time.

Things you must do before approaching investors for any amount of money:

1. Line up your team.

The big question for nearly every investor is: Can you do this? They'll want to know that you and your co-founders or management team can execute the ambitious business plan you’ve presented and pay back your loan or generate a return for investors.

"Investors want to have a gut feeling they can trust you and your team," says Larry Kaplan, a New York area consultant who advises new ventures. Be ready to make the case for why you and your team have the skills and experience the business requires. "The question is: Have they done this before and where have they done it?" says Kaplan.

Make sure you and your key people can talk about what may be ahead for the business, what the later phases of growth might be, what can go wrong, and how you might handle those things.

2. Write a short business plan.

Writing a business plan is easy. Writing one in sufficient detail for investors can be tricky. Entrepreneurs often leave out key numbers and are overly optimistic with those they provide, Kaplan cautions.

For starters, know your burn rate, which measures how much money a not-yet-profitable business is spending each month, and break-even point, Kaplan says. Have a good estimate on your first-year cash requirements, your gross margin, and how it compares to the average for your industry. Also calculate a realistic growth rate and how your costs will scale up as your sales do.

New entrepreneurs are almost always too optimistic about how quickly sales will happen. A good plan will also cover who your customers are, how you will get them to buy your product, and your cost of customer acquisition.

Once you’ve worked out these details, "you have to know them cold," says Kaplan. "You have to convince the other person that you know more about this business than anyone else."

3. Create an investor wish list.

Draw up a list of ideal investors, but choose them carefully. Accepting financing means taking on a new relationship, one you’re likely to have for a long time, be it with a bank or investor or a different relationship with your friends and family. Sometimes the relationships go on for some time before any money changes hands.

Geshwiler estimates that most business owners can carry on conversations with only a maximum of six potential backers at the same time. So he suggests coming up with a list of six organizations or people you would like to have backing your company and approach them with an eye on getting to know one another. "As one drops off for one reason or another go to No. 7, then 8," he says.

Eventually the six will narrow to one or two relationships where the timing, the style and strategy and the gut feeling seems right on both sides. Those will be your lenders or investors.

When to Approach? 3 to 6 months before You're Desperate!

Startups usually wait to build a perfect product before they go out and talk to investors. Investors advise something else: a lesson I learnt the hard way, is that the investors expect startups to approach them before they run out of money and become desperate for an investment. You want to pitch when you're in top form, with attractive metrics, and holding the power. Better yet, you want to start having these conversations before you're even start looking for money.

1. Seek the Warm Lead, Don't Barrage with Cold Ones

Instead of cold calls or emails, reach out to a credible friend, past investment, or investing partner you already know, and ask for introductions or recommendations to investors who would be good for you.

That might be a member of the board they are on, a founder of a portfolio company, an influencer in your industry -- the list goes on.

The point is, investors usually get many inquiries and one way for you to stand out is to get highlighted as valuable and worth paying attention to by someone they trust. Many venture capitalists won't even respond to startups that don't have a warm intro -- their deal flow is just too large.

Step back and be smart about building a 'critical path' to the investors. This may affect the relationship you build with your future investors. This is just the beginning. Make it right, so that you don't need to look for a second chance for first impression.

 2. Pitch Deck:

A pitch deck is a brief presentation, often created using PowerPoint, Keynote or slidebean.com used to provide your audience with a quick overview of your business plan. You will usually use your pitch deck during face-to-face or online meetings with potential investors, customers, partners, and co-founders.

Slides of a Pitch Deck

1.    Introduction:- Who are you? Why are you here? Keep it short and sweet.

2.    Team:- Show the people behind the idea and briefly describe their role.

3.    Problem:- What problem are you trying to solve? Is it really a problem?

4.    Advantages:- What makes your solution special? How are you different from others?

5.    Solution:- Describe how are you planning to solve the problem

6.    Product:- How does your product or service actually work? Show some examples.

7.    Traction:- Traction means having a measurable set of customers that serves to prove a potential.

8.    Market:- Know, or at least attempt to predict the size of your target market.

9.    Competition:- What are the alternative solutions to the problem you are trying to solve?

10. Business Model:- How are you planning to make money? Show a schedule when you expect revenues to pour in.

11. The Ask:- What is your planned Budget? What kind of money are you looking for?

12. Contact:- Leave your contact details and let people know how to reach you quickly.

Pitch Deck Do's

1. Tell a story & engage people emotionally, Everyone loves to hear stories, even the investors. So tell an exciting story about your startup.

 2. Limit each slide to expressing one idea, You want to keep your entire audience on the same page

 3. Prepare to make a great first impression, First impressions are powerful. Believe it. The first 2?3 minutes are the most important

 4. Show the people behind your idea, Focus on a significant, relevant accomplishment for each person in a team that identifies that person as a winner

 5. Keep a consistent look in presentation, Use the same font, size, color and capitalization format across all slides of your investment pitch deck.

 6. Know your metrics better than anyone and remember Traction speaks louder than words.

 Pitch Deck Dont's

1. Don't use too many bullet Points Too many bullet points will kill a presentation.

2. Don't make it too long in the pitch because you have 38 slides. The average VC, investor attention span/cranial capacity: 10 slides. Do the math.

 3. Don't read word by word from your script. You will sound like a robot and miss the all?important eye contact with the audience.

 4. Don't create a text-rich, picture-poor presentation. People cannot read and listen at the same time. Great visual inspire and engage people emotionally.

5. Don't Come unprepared, Try to anticipate the kinds of questions they might have and be prepared with answers.

6. Don't use small fonts, Always use a font large enough to be seen by all audience members. Use 32- to 44-point for titles and no smaller than 28-point for the text or bulleted items.

Here is a Canvas to help you think better

Simple Statement of what change you and your product are making in the world? (A memorable one-sentence explanation of what you do for your customers).

Pain(+Gain)

·      What problem are you solving for your customers?

·      What does the pain result in?

·      Can you make the pain a human problem, that everyone can relate to?

·      How many people need this problem solved- market size?

·      Have you validated that people will pay to have it solved?

Product

·      As simple as possible what does your product do for customers?

·      What opportunities do you provide for people to be faster, more cost-effective, more efficient, happier and safer?

·      How does it work?

·      How have you tested it with customers?

·      ( be sure now to let the product dominate the pitch)

Product demo

·      Live demo? (always risky but powerful if it works)

·      A screen flow movie of a working app convinces this is for real .

·      Physical products convinces you can execute. But screenshots are also OK, but it has the risk of looking like a mock up.

·      Can you show a real customer using it?

What’s Unique

·      Technology/ Relationships/ Partnerships.

·      How do you help your customers get results differently to your competition, or alternatives?

·      Show you have researched the market and know what competition is out there.

Customer Traction

·      Success so far?

·      Pilot customers Major Brands?

·      Progression in users or downloads

·      Customer reference quotes or movies

·      PR coverage? Competition wins?

·      Use data and facts to strengthen your case

Business Model

·      How do you get Paid?

·      What the opportunity for growth?

·      How can you scale beyond your current scope: new industries, territories, applications of partnerships and technology?

Investment

·      Have you invested money yourself?

·      Have you raised money so far?

·      How much are you looking for now?

·      What big next steps will you use the investment for?

·      What milestones will reach you this money?

·      How many, and what type of investors are you looking for?

·      What expectations do you have of your investors; network, expertise?

Team

·      What relevant experience and skills do your team have that supports your story?

·      Brands worked for? Achievements? Sales success?

·      What binds you together as people and as entrepreneurs to fix this problem?

·      What’s special about the character of your team, that will make your stand out and be memorable?

Finally, be ready to answer this "Why You?"

This question can show up in any part of the pitch. Why do you care about solving this problem for your customers? How has your life been affected by this industry and business Why should your audience have confidence that you are driven to do what you promise, no matter what?