6 factors you should see in an Investor before approaching him
Its a well know fact that all Investors LPs /GPs of VC funds or a PE fund often receive thousands of emails every week and only 2-3% of founders take in- a conversation with them. But Fundraising strategy involves careful planning and targeting the right Investors who can accompany for the rest of the success journey. If not planned well the fundraising will be a time-consuming process. From Pitchworks, we present simple 6 filters you should consider before targeting an investor.
For First-time founders, all investors might look the same but they aren’t
After running 500+ campaigns and raising over $100+Million what we find it multi-touch, Multi-channel approach works each and every time. Whatever may be your approach channels Angleslist, Linkedin, Cold emails or Twitter the time you take for gathering investor data is huge and bit pricy too if you are on early stage. So it very important you create an Ideal Investor Profile. This article is all about saving your time and effort on data collection and targeting the right list with our filter.
Raising money is enough of a distraction for entrepreneurs, Especially on your early stage you certainly don’t want to burn hours/ weeks and effort on Camapgins which wont not work for you. "Knowing Thy Investor" is the key rule here, as each fund & portfolio set is different knowing whom you target to get them nest stage is key here. Tools like Linked-in, angel list, Crunchbase give you enough information about whom you want potentially partner with. Let’s take see some of the main criteria you should put on frontline filters.
Industry Pattern
Look at the past investments Investor s have made, this gives you a clear idea of 3 things,
1 Are they actively investing now ( 0-6 Months )
2 Kind of company he/she is investing
3 Number of Exists
At the same time, one needs to see the number of exists an investor had, the exit timeline pattern data clearly shows if the investor is short term / long term/ Opportunity exit /
Most of the investors are choosy about the kind of investment they make. An angle investor with 5+ investment on manufacturing might not want to blindly invest in a consumer dating app unless he or she has the background context/ interest around it, given that previous track record for investments will help you find a pattern of what are they willing to talk.
Co-Invest Vs Independent Investment
In our experience of facilitated investor deals, we have had insistences where VCs would agree up to the valuation but would commit to the transaction only if there there is another co-investor or lead investor involved. So when you research about the investor also look at the track of co-investments deals he/ she has been involved. This would set our pitch and expectations right.
Few angles have a policy that compulsorily co-invest or never to lead the investment , this policy is mainly due to the due-diligence and other processes, we have seen founders taken aback as they might have to invest few more weeks to find another investor to close the deal.
If the track record of potential investor seems to be doing both ways co-investing and investing independently, it would be better to ask up front about his/ her stand. Basic research on this would not only save hours of your time but also improve the efficienty of the outreach campaign you can strategies & personalise based on the past co-investment type. For a single round, there can be a lead investor along with other co-lead investor or investors alone
Size of Investment
Each investor has a ticket size what's small to one fund/angel might be large to others, what’s large to VC might be small to PE, so always go with historical ticket size data. In Silicon Valley, an angel round varies between $300K and 1M.
Individuals typically invest $50K–100K but we a have also seen as $10K, group. investment range between $100–500K and super angels $100K-1M.
What type of industry are you in? typically life-science deals larger than others , we have also seen professional services or sales-tech deals start with a low ticket size, but it pretty much depends on what resources are needed to reach the next milestone.
The average check written by individual angels is north of $36,000 and the median is $25,000, but we saw quite a range, from $5,000 to $100,000 for the most part.
Pre-money Valuation of the investor's portfolio company
There are VCs and PE funds who are very particular about valuation they are getting into (the pre-money valuation of a company comes before it receives an external funding) because this figure does give investors a picture of what the company would be valued at today. You must understand these funds are responsible for their LPs and Hedge funds from where they have raised who again have their own terms and conditions between them. So when you quote the valuation make sure you have the ideal size of the potential investors historical investment. At an early-stage VC would want to come in for somewhere between 10-25% and PE on upwards of 60%. “Less funding is worse than no funding” we have seen founders picking up deals of less valuation for the sake of runway, the less valuation for the sake of runway makes sense but the less funding for the sake of short term goals had never worked out wonders.
Investment Stage
VCs often take a specialised approach, focusing on one key phase of the lifecycle of a growing company. Some Funds use a diversified approach, providing initial investment to companies at different stages in the financing lifecycle (for example, they may invest 25% in startups, 20% in growth-stage companies, and 15% in later-stage companies).
But there is no point in approaching Series A investor to join a seed or pre-seed round, there is no point in pitching a angle investor to join a PE or Series D round.
On each investor profile in crunchbase or pitch-book you will find a section called investor stage , you might have to filter down this first before you prepare your prospective campaign list
Research on the Content they share on Social Media
Clearly there is lot of sense in getting on the social networks where investors already active, Linkedin twitter, clubhouse. Using social media to connect with potential investors is a topic that startups searching for funding need to understand very well. Over the last decade, fundraising campaigns has drastically changed in the process and reach out methods. In the past, social media was primarily viewed as a tool for businesses to engage customers and grow their sales, now almost 1 in 4 investors find their deals through social media. Using it as a tool to find investors, build an investor pipeline is just one way of looking at it , another way is to find the kind of interest from the kind of content he/she shares. You could capitalise a lot on personalisation with the kind of content they engage or share with their audience. Conclusion
At the end, partnering with right early stage investor matter more than ever, they kind of time they are willing to offer to grow you business, the kind of social brand they own , their success story , credibility all adds up to the startups later stage investment. If you are not sure about preparing your own target investor list we at Pitchworks can help you do that , if you are interested you can apply for our consultation here
Great read. Thanks for this.