How to Find the Investors Who Will Actually Invest in Your Startup

How to Find the Investors Who Will Actually Invest in Your Startup

You’ll become better at fundraising once you’ve learned how to pitch the right investors

How to Find the Investors Who Will Actually Invest in Your Startup
Photo by Evgeni Tcherkasski on Unsplash

Startup founders who’ve successfully raised venture capital tend to share the number of investors they’ve pitched like it’s a badge of honor. Even if they don’t know the exact number, they’ll happily remind you of how many times they heard “no” before getting a “yes.”

On some levels, I appreciate the sentiment they’re conveying. They’re reminding aspiring entrepreneurs that fundraising is hard work, that the process includes lots of rejection, and that founders shouldn’t give up on their fundraising efforts after being told “no” a few times. However, the problem with this messaging is that it also teaches founders to think of fundraising as a “numbers game.” It tells them if they talk with enough investors, eventually they’ll find someone willing to give them money.

Hopefully, the problem with this is obvious, but, in case it isn’t, let’s be clear: Pitching investors takes lots of time, and time is an entrepreneur’s most precious asset. Because of this, pitching more investors than you need to isn’t something to be proud of. Your goal should be to pitch as few investors as possible. In order to accomplish this goal, you have to avoid the biggest mistake inexperienced entrepreneurs make when fundraising, which is pitching the wrong investors.

Despite the fact that anyone who invests money in startups gets called “investors,” the category of people who invest in startups isn’t particularly homogeneous. Instead, every investor relies on a specific strategy in order to make their investment decisions. This strategy is called an investment thesis.

The differences between investment thesis manifest themselves in all sorts of different ways. For example, some investors only invest in companies with certain types of products, some investors only invest in companies with certain amounts of revenue, and some investors only invest in companies located in certain geographic regions.

Inexperienced entrepreneurs don’t tend to understand this. Instead, they hear someone is an investor, and they immediately want to pitch that person. This is a big part of why so many entrepreneurs hear “no” as often as they do. Oftentimes, when they’re hearing “no,” it’s not because their startups aren’t worth investing in. It’s because they’re pitching investors who don’t have a matching investment thesis.

Luckily for entrepreneurs, figuring out an investor’s investment thesis isn’t hard. All you need is something I’m sure you already have: Google.

SImply put, before contacting investors, always Google them. Doing so will reveal three types of information that’ll help you figure out the investor’s investment thesis and determine whether reaching out is worth your time. Those three critical pieces of information are: biographical data; historical data; and philosophical data.

Here’s why each type of information is valuable and how to use what you find:

Biographical Data

The most common form of biographical data you’ll find when Googling investors includes LinkedIn profiles and whatever bios they’ve shared publicly on their relevant websites. This biographical data is useful in two ways.

The first way biographical data is useful is because it helps you learn about the investor and look for shared points of commonality. That includes things like where the investor went to college (maybe you attended the same school!), the investor’s hobbies (are you both interested in craft beer?), and even the investor’s favorite sports teams (what if you’re both Yankees fans?). Knowing this type of information will help you build relationships with investors as people rather than just sources of money. This is important because, despite what you may have heard, investors really are people, and they enjoy being treated as such.

The second way biographical data is useful is that it will help you find the next type of valuable data you’ll need, which, as I mentioned previously, is historical data. Specifically, biographical data about investors tells you about their professional experiences, what kinds of companies they’ve previously invested in, and what kinds of companies they’re likely to invest in in the future.

Historical Data

Knowing the professional backgrounds of the investors you’re considering contacting as well as any companies they’ve previously invested in is going to tell you a lot of what you need to know about their investment thesis.

For example, an investor who has only ever worked for and invested in medical device companies isn’t going to be a great person to approach about your Web3 dApp. Sorry.

Also, knowing historical data about investors’ activities can help you better understand how they operate and how to connect with them. For example, looking at what other companies they’re currently invested in can tell you who you might already know (or who you should get to know) if you need an intro.

In addition, historical data can help you find people to talk with who can tell you what it’s like to have a specific investor involved in a company. This is important because, once investors invest, they become important members of your company who unlike employees, can’t be fired. In fact, more often than not, your investors are the people who can fire you. That means you want investors you can trust and whom you’ll be happy working with for a long time.

Philosophical Data

While biographical data is what can help you build relationships with investors, and historical data can tell you what kinds of investors they are, the philosophical data is probably the most important info to know because it explains their investment thesis. And, as I explained earlier, you need to find investors with an investment thesis that matches what you’re building, otherwise they won’t fund you no matter how much they like you or you like them.

Finding philosophical data about some investors is trickier than for others, but, for most investors, it’s not impossible. Sometimes, you’ll just have to get a little creative.

The best places to look for philosophical data are on sites like Twitter and Medium as well as personal blogs. Simply put, lots of investors are intentionally public about their thoughts on startups, so find out where that investor is producing content, and read it.

Even for investors who aren’t actively producing their own content, most of them get incorporated into other people’s content. For example, lots of investors participate in panels that get filmed and posted to YouTube. Or they get interviewed on podcasts.

Look for content featuring your target investors, and listen to what they’re saying. This will give you helpful insights into how they think about investing and whether or not your startup fits into their strategy. When you do this effectively, you’ll know whether or not an investor would ever consider investing in you before reaching out, and you’ll save lots of time. As an added bonus, you won’t have to hear so many people telling you “no.”

Go to Publisher:

Entrepreneur's Handbook – Medium

Author: Aaron Dinin, PhD