building relationships with investors — before you need their money

In contributor editorial, issue one, the updateby jayclouseLeave a Comment

by Allie Felix

Almost daily, a request floats through my inbox from a startup seeking guidance on fundraising. The asks run the gamut—reviewing a pitch deck, feedback on the deal structure, or a warm intro to an investor.

So how can the density of capital going into the coastal startup hubs make its way to a promising founder in smaller markets? One way is to build targeted relationships with investors well in advance of needing their money.

Not surprisingly, Embarc Collective‘s annual regional survey cited that 63% of founders in Tampa Bay, FL (our market) said they need better connections to investor prospects—and we’re not alone.

A whopping 80% of all venture capital dollars go to just three coastal states: California, New York and Massachusetts. That leaves an incredible number of compelling investment opportunities on the table in cities all across the United States that have gone largely unidentified.

Some startups have missed the mark on the art of preparing for a round of fundraising, which should come months, even years, ahead of the moment you are ready to ask for a check.

What Mark Suster shared about the nature of investors in his blog post circa 2010 remains true today:

“Invest in lines, not dots.”

Each interaction you have with an investor is a single data point. Over time, investors use multiple “dots” of interaction to draw a line of connectivity that creates a full picture of your ability to execute on your vision.

Instead of being a dot that pops up as a cold email in your investor’s inbox, you can consciously begin creating lines of connectivity from the early stages of your startup’s growth. This means determining who is a relevant investor, figuring out how to get their attention, and learning how to nurture those connections from afar.

who are relevant investors?

To build the right relationships with potential investors, you need to understand who you are targeting and why they are a fit.

Andrew Ackerman, Managing Director of Dreamit Ventures, shares that in the art of prospecting investors, you generally want to build a list of 50-100 relevant prospects before kicking off your round.

Consider sourcing this list through researching fundraising rounds for comparable startups on platforms like AngelList or Crunchbase. This data will reveal the deal size, deal lead, and funds that are active in your space. Armed with this information, you can can build a list of relevant funds who participated, take note of their comparable portfolio companies, and then continue to identify investors who participated in these companies.

The cycle continues from there.

Armed with this information, you can determine who is a relevant fit based on the fund thesis around sector, stage, location, and activity, as outlined below:

Sector
For example, as a real estate or construction (Urban Tech) startup looking to raise a seed round, you’ll want to target Corigin Ventures, Dreamit Ventures, Brick & Mortar Ventures, Borealis Ventures, or Shadow VC given their specific focus on this sector. You’ll want to be mindful of their portfolio. If the fund has already invested in a direct competitor, they won’t be a fit for you.

Stage
If you’re raising a Seed round, you don’t want to reach out to a Growth stage investor. Similarly, if your goal is to raise a Seed round, you’ll need to match your ask with an appropriate level of traction. This is typically a $500k-$3M round size from a mix of early stage VCs and Angel groups.

Location
Do they invest geo-specific or agnostic of location?  More and more, I am seeing investors are eager to find breakout companies building quietly yet diligently with a fraction of the resources as a company in a major market. While some funds deliberately focus on finding these startups—such as Elsewhere Partners, Rise of the Rest, and Hypothesis—most institutional investors are simply starting to take note.

Activity
Shai Goldman of Silicon Valley Bank created an open-source document of venture funds as a resource for founders who are raising early stage capital. It’s important to understand how much capital has been deployed in the funds you’re targeting and if the fund is still actively making investments. The more recent the fund was raised, the more capital the VC firm tends to have available for new investments.

**Tactical Takeaway: Build a Twitter list of relevant investors in your industry by mining for the right contacts through Advanced Twitter Search. This list will help flag conversations you should be a part of and keep you up to date on overall industry trends and investment activity.

After you add the target venture funds you’ve identified, you can begin to add the Partners and Principals of those funds. The fact that your list is public is a plus—it’s a subtle nudge that you are aware of these folks as you build your startup, similar to viewing a profile on LinkedIn.

where are relevant investors?

Once you have outlined the profile of your target investor, you can dive into how to build and nurture those relationships from afar.

Simply put, the role of an investor is to find great deals that earn a return. Their role is to meet interesting founders, attend relevant industry events, learn about emerging technology…you get the point.

By normalizing their behavior, you can begin to check the box on how to maintain these relationships. Are you popping up on their social media? Are you attending the events they are? Are you making an effort to follow-up regularly?

Building Your Street Cred
Understanding that we live in a much smaller market than NYC, SF, or Boston, it’s a given that you can reach our local region’s network pretty regularly. Because of this, focusing more of your energy on establishing brand credibility in the industry in which you’re building, instead of your region, will give you a leg up—whether it be with your investors or customers.

This means developing a voice in the most important communities to your industry, whether it’s commenting in industry-specific sub-Reddits, answering questions on Quora, or positioning yourself as a thought leader on Medium. The more targeted content you produce, the more SEO friendly you and your business become outside of the city you are building in.

Social Media
Don’t just follow the venture fund itself, but the individual VCs themselves at the funds you are targeting—from the Principals to the Partners. While Partners are the decision makers on a deal, Principals are often conducting the early research to flesh out the investment landscape for the sectors they invest in.

As a startup located outside of the coasts, social media engagement can be a great democratizer in creating dots of connectivity that you wouldn’t otherwise have on a day-to-day basis.

Accelerators, Incubators, Startup Competitions
While you may want to build your company locally, opportunistically joining targeted, regional programs can supercharge your growth in advance of raising a round. Benefits can include receiving a small investment, a mentor network specific to your industry, and access to a national audience of accredited investors on pitch day.

A few national accelerators are currently accepting applications: Dreamit Ventures, Gener8tor, Techstars Atlanta, and 500 Startups Miami (equity-free).

Conferences and Events
Plan to attend your primary industry conferences for startups and investors and scan the speaker roster and conference hashtag to determine a target list for meetings.

A few weeks in advance of the conference, send your target contacts a personalized, thoughtful email and make the ask to schedule a 20-min meeting — just enough time to meet face to face in a breakout room or nearby coffee shop. If their email can’t be found on a company website, free tools like Hunter and Clearbit Connect can help you find the right contact.

Even if you don’t get to meet during the conference, you’ve created a pathway of conversation to schedule a call following the event.

Quick Trips
Once you’ve had an initial meeting with a few investors clustered in a city, plan to visit that market twice a year at a minimum to give progress updates. During each meeting, tell your potential investor what you plan to achieve by the next time you see them—and set yourself up to exceed expectations.

You’ll be able to give them an update on key hires, pilot customers, key product innovations , and they’ll be able to see that you executing against your set goals.

Keep these interactions low-key and short, with the goal being relationship building rather than an all-out pitch presentation.

**Tactical Takeaway: Investor updates can be used as a tool to maintain warm relationships with the target investors you’ve connected with.

Typically, investor updates are structured as a few bullet points sent via email every 1-2 months. The update serves as a tool for the CEO to keep your progress top of mind to your investor.

Prior to making an investment ask, a lighter version of this investor update can be used to demonstrate traction and maintain connectivity to investors you’ve connected with.

caveat: venture capital is not the only option

Venture capital should be seen as a tool to scale at a critical milestone for growth or scale for your company—but it’s not the only option.

Ultimately, raising venture dollars means giving up some control of your startup. A bigger piece of a smaller pie can sometimes be worth more. In fact, it’s quite possible that you could sell your startup for $1B but wind up with less money in your pocket than someone who sold for $100M, because every round you’ll have to give up more of your stake in the company.

With that, consider the other options to fund your company:

  • Equity crowdfunding, i.e. Republic, SeedInvest
  • Crowdfunding, i.e. Kickstarter, Indiegogo, iFundWomen
  • Traditional Bank Loan
  • The best kind of capital – revenue growth!

Looking for more curated resources on how to prepare for your first fundraise, straight from the experts? Search no more.

 

Allie Felix is the Director of Programming & Partnerships at Embarc Collective, an innovation hub in Tampa Bay, FL. Previously, Allie led community at Work-Bench, an enterprise technology venture fund, and business development at 37 Angels, a women’s angel investing network in NYC. Prior to that, she managed marketing and partnerships for Tim Draper’s pre-accelerator program in San Francisco, Draper University. Allie currently serves on the board of Emerging Technology Leaders Tampa Bay.