Many small business owners find angels, often retired executives or entrepreneurs, through word of mouth. These angels, or high net worth individuals, are willing to invest in their businesses in exchange for a piece of the business. Several business groups also have created networks of private investors, such as the Minority Angel Investor Network, Angel Capital Association, Angel Venture Forum, and Private Investors Forum. Investors are hungry for deals.
Raising capital for your business is a team effort, so it’s important that you work with the right group of people, you’re “dream team” of investors so to speak. You should focus on working with investors who have extensive networks and knowledge in your startup’s market, says Brian Friedman, founder and CEO of Loopd, which was founded in Silicon Valley in 2013 and is an emerging leader in relational analytics that measures proximity-based human interactions and engagement for corporate events. Investors hear the same pitch all day long, so, you have to make sure you stand out, stresses Friedman. This is where your dream team comes into play.
Here are five steps on identifying and meeting with investors to do some serious fundraising.
Step 1: Find a lead investor
The most important step to raising your seed round is finding your first investor. This investor is your lead investor and it should be someone who has a large network, a respectable reputation, and a burning passion for your company, Friedman says. Your lead investor will help accelerate the entire process, so take your time, and make sure you’ve identified the right person. The lead will not only set the terms for your round, but they will also share the round with their personal and professional networks. Once you have a lead investor, you should make a list of other angel investors who could make up your “dream team,” adds Friedman. To find the initial set of right investors, start with websites like CrunchBase.com and AngelList.co. Each investor should have a history of completing deals with your lead investor and have experience investing in your sector.
Step 2: Perform due diligence
You should be taking “smart money” rather than “dumb money.” Meaning, you should complete your due diligence on every investor, advises Friedman. Make sure that you are only bringing on investors that are advocates for your vision and have the ability to help you execute on your goal. Friedman suggests having five or more investors who can help you in different aspects of your company. “Money is as valuable as its currency, but knowledge from an experienced investor is priceless,” he says. Also, each investor will also complete his or her own due diligence on you.
Step 3: Get an introduction
Now that you have your list and due diligence complete, you will want to get an introduction to each investor. Provide your lead investor with a template to use and have them cc you on the email. “By having your lead investor send the first introduction, it will act as validation. Imagine how many emails each investor must get every day asking for them to look at a company pitch,” explains Friedman. You need to stand out from the rest. The introduction should be very simple, and be focused on your management team. “At the end of the day your product and market analysis is driven by your team’s execution, and you will want to be presented as a “rockstar” by your lead.”
Step 4: Use an email structure
Once you’ve received a response from an investor, you will want to reply with specific content to move the process along. Now that you have your foot in the door, you must take advantage of your leverage, adds Friedman. Your reply should be very short, to the point, and have a clear call to action. Ask the investor to meet in person and provide a few times and locations. If the investor is not in your area, then drive, fly, or do anything else to make it convenient for them, notes Friedman. Don’t attach a pitch deck or a one-pager to the email. This will just provide more ammunition for the investor. You will want to save your material, so that you can personally explain each detail from your perspective. The investor should become attached to your vision, and it’s important that you don’t create any opportunities for the investor to shut you down before you reach this point.
Step 5: Follow the “Three Cups of Tea”
A methodology you should apply is “Three Cups of Tea” to build your personal and professional social capital. It’s the key to forming authentic relationships, which are built on transparency, honesty, and trust, Friedman explains. “This system will help you form a real bond with each investor, so that they don’t think of you as just another deal on the table. The “Three Cups of Tea” is based on the belief that you need to have three interactions with an investor before moving forward together with a deal.”
As Friedman describes it, the first meeting should be 80% personal and 20% professional, so that you can really get to know the investor. Share with them your passions, and ask them questions about their personal interests. The second meeting should be 50% personal and 50% professional. Now that your investor has connected with you on a personal level, they will be able look at your company from an unbiased perspective. The third meeting should be 20% personal and 80% professional. It’s a great sign if you’ve made it to your third meeting.
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