How to Find Investors

Once or twice a month I do a LinkedIn Live Q&A with ILT Academy answering startup questions. In our last session we answered one that comes up often from early-stage founders: “How do I find investors?”

Sharing my thoughts here:

Types of Investors

First, you should understand that not all investors are created equal. At the earliest stages there are 3 main types to consider, each with different goals / incentives:

1) Friends & Family - as implied, these are people from your existing network who know you and believe in you as a person. The natural progression for a venture-backable business is to start by raising a friends & family round (usually $50K-$300K) early on. This is pure founder-market fit; they are investing because they want to see you succeed. Your idea may still be pretty rough, but if you can tell a convincing enough story for them to trust that you’ll figure it out, they’ll bet on you. They must be accredited investors to invest.¹

2) Angel Investors - these are well-off individuals who invest their own money, often advanced/retired business owners themselves. They may set aside some amount of money each year to invest in startups, perhaps they do it for a living. In this way angels are more sophisticated than friends/family (though not mutually exclusive). They are investing in 10s of businesses over the years with the hope that a few will achieve outsized success and create some ROI for the entire portfolio. They, too, are betting in you as a founder, but they’ll also want to see some early validation (customers, revenue, meaningful traction)

3) Venture Capital (VC’s) - these are professional investors managing other people’s money in a fund (ie. they have their own investors, who themselves are betting on the fund to efficiently find good startups to invest in). They may have specific thesis areas, stage preferences, and return expectations. Their incentives are similar to angels but on steroids; early-stage VCs invest on early validation and momentum. They’re typically evaluating your business’ potential to return 10x their investment (at least).

Investors as Customers

Now, one thing many founders don’t realize until getting burnt a few times: these^ aren’t just different check sizes, they are different customer segments with different needs & decision making processes. You must think of them as ‘customers’.

A pre-seed VC fund has different goals than a growth equity firm. An impact angel investor cares about different metrics than a traditional VC firm. A former founder turned angel brings different expertise than a finance-background partner.

As Nick put it in our session: "Not everybody with a mouth wants your peanut butter and jelly sandwich. And not everybody with a bank account wants to give you their money." In this way it’s important to focus your energy on investors in your wheelhouse. Don’t waste time pitching investors out of your stage, focus area, size; it’s no use for either side.

Investors are customers, you must treat it like a sales process. Which means cultivating relationships, not transactions. Generally you it’s helpful know and investor for some time before they’ll even consider an investment. Here’s how

Finding Investors

Okay with the necessary context out of the way here’s how to find them:

• Directories: A great starting place to find investors efficiently is searching through investor directories. The big ones are Crunchbase, Pitchbook, AngelList. There are hundreds of others; accelerator-maintained Airtables floating around Twitter that list investors by stage and focus area.

• List Building: Go through these directories systematically. Filter by your stage (Angel, Pre-Seed, Seed), focus area (industry, business model, etc) and check size if you can. Create a target list of 50-100 qualified investors that could be a fit (ignore the rest)

The Warm Lead Game

Here's where most founders go wrong: they take their shiny new list of 100 investors and begin firing off cold emails asking for meetings with a pretty please. Don’t do this!

Just like with customer prospects, cold outreach to prospective investors has maybee a 5-10% response rate, those that do will waste your time (I’ve had far too many intro meetings with college-sophomore VC ‘venture scouts’ where my pitch deck never makes it to the GP).

You only get one shot with each investor; don’t wase it on a cold email that gets buried under 200 others that week. Instead, focus on warm introductions. A few tactics that actually work here:

• 1) Portfolio Companies - look at who they've already invested in. Reach out to those founders on LinkedIn or Twitter. Ask if they'd be willing to share their experience with that investor, and if it makes sense, ask for an introduction.

• 2) Accelerators and Programs - this is honestly what accelerators like Y Combinator, Techstars, gener8tor, and BETAmn are for: introduction mapping between founders and funders. If you think of it this way, the warm intro network can be worth the equity you give up (timing is important)

• 3) Go Where Investors Go - yes it’s true, you can go to networking events (industry conferences, startup events, demo days). But don't show up to pitch how up to build relationships. Ask for advice, not money; this is a longer game, you should expect that you will know an investor for 6-12+ mo before they invest (plan accordingly)

• 4) Your Existing Network - map your 2nd-order connections too. Former colleague who went to work at a startup that raised a Series A? Customer who's also an entrepreneur? Your college roommate's dad who "knows some people in venture"? A bit underrated; we have 4 investors on our cap table who have come this way

Relationships > Transactions

In the words of Mr Worldwide himself: “Ask for money, get advice. Ask for advice, get money twice (Dalé)”

As I eluded to above, the best investor relationships I’ve seen started months or even years before any money changed hands. I’d send monthly updates about our progress, or make intro’s to other startups, or just say hi cordially at networking events.

When it comes time to raise, these investors are familiar with your business and watched your execution. The ‘pitch’ becomes more of a formality. Our latest funding round, in our pitch to eventual lead investor we didn’t even pull up the pitch deck.

This is especially true for professional investors (Angels, VCs). They interface with hundreds of potential deals each year. Building a relationship helps you get your head above the crowd, AND as a founder helps you screen for investors you genuinely like / want on your cap table vs. transactional relationships.

Find an investor that has conviction in 1) your ability to navigate uncertainty and 2) build something meaningful.

2 Takeaways

• Like other sales processes - finding investors isn't about sending the perfect cold email or having the most polished pitch deck, it's about building genuine relationships with people who get excited about what you're building and believe in your ability to execute.

• Start cultivating those relationships before you need the money. Be helpful to your investor network. Make introductions. Share insights from your industry. Be authentic about your challenges and how you're working through them.

This approach will probably take longer and require more intentional effort than spray-and-pray cold outreach. But it's the difference between raising capital and burning out trying to raise capital.

Hope that helps :-)

Peace,
Ramsey

1  Accredited investor is requirement from the SEC to invest in startups; criteria here