I get you, when you are looking for your first funding you are under time pressure and, if you are not graduating from an accelerator program (i.e. Y Combinator, Entrepreneurs First, etc.), you probably have only a rough idea where to start. However, if you target smartly your efforts before sending your pitch deck to whatever VC or Angel Investor you can find in Google or you hear about, I can assure you that your chances to close your funding round will increase significantly.
During my time as VC investor I have received many pitch decks that are far from what my fund investment strategy and focus is. Then, my first thought has always been: “he/she did not even take the time to look at our website”. Of course, I reject these deals easily as they do not have anything to do with what I am looking for. Meanwhile for you, this is another rejection and more time wasted. And remember, when you are a startup founder time is as important as capital.
So if you are a founder looking for capital first consider this: most deals VCs or Angel Investors end up closing come from recommendations from an entrepreneur in their portfolio, another investor or anyone that the investors trust.
Focus your efforts in getting introductions or referrals to the VCs or Angel Investors that interest you.
However, if you cant get an introduction and you must contact the investors directly, my first advice is to do your job in advance. It might sound basic but please: research about the VCs you are contacting. This is important because if you contact an investor that focuses in deals different than yours without explaining why you are contacting him/her, you will loose two opportunities: a) get funding, and/or; b) get a referral.
How to target the right investors for your startup?
- Geography: contact only the investors that make deals where your startup is located. Does not matter if your business is hot, the chances of a VC making a geographical exception for you are low. Usually, when VCs change or adapt their investment focus, this comes after a long process of discussions with their LPs. You do not have time for that. Note: Angel Investors could be more flexible on this topic because they are investing their own money, and do not need to ask anyone to change or adapt their investment strategy.
- Deal Stage: contact only the investors that do seed investments. Again, does not matter how great your startup is, this is a clear and unbreakable prerequisite VCs have for selecting deals. Tip: prioritize Angel Investors as they, by definition, concentrate in seed investments.
- Sector or Industry: VCs and Angel Investors in more or less extent have sectors or industries where they prefer to invest. This is not only because investment teams have experience in specific sectors, but also because in those sectors is where they can offer more value to entrepreneurs through knowledge, expertise and network. If you have a VR startup, contact those investors focusing on VR tech.
- For Strategic Investors: this type of investors (corporate VCs: i.e. Comcast Ventures, Citi Ventures, Vorwerk Ventures, etc.) will not fund your startup unless it is aligned to their investment strategy or, if your startup demonstrates potential synergies with the companies behind these funds. For example, if you are a fintech startup that could revolutionize Citi payments tech, you probably will get funding from Citi Ventures. Corporate VCs are extremely selective choosing their deals and patient enough to wait until they find the right ones because they do not have the pressure to spend their funds in a certain period of time. The advantage for startups that close funding with strategic investors is that startups get access to the business & operations intelligence, partnerships, sales contracts or even a potential acquisition from the companies behind these investors. Tip: if you do not fit with the investment strategy of a Strategic Investor, or you can not point out any potential synergy between your startup and the company behind these type of funds, I would spend my time contacting other investors.
To look for the VCs or Angel Investors that focus on the geography, stage and industry that match your startup you can use Crunchbase. This is a free database of investors, startups and funding rounds. You can research the most active seed investors in your region, then look at their profiles to know whether they focus on your sector.
If you raise funds smartly by targeting the right investors for your startup you would not only have a better chance to close your funding round, but also have the right mentors to help you develop your business.
Also published on Medium.