How to find investors; when and how to approach
Some of the most common questions we get from entrepreneurs surround how to find investors, when to approach them and how to approach. Approaching investors is one of the most daunting but necessary tasks of entrepreneurship. Convincing these moguls to hand over their hard-invested capital takes nerve, but it should not phase the clued-up entrepreneur.
When should you approach?
Most of the suggestions in this article require forward planning. You don’t want to be in a position where the moment you get in touch is the day the funds are running out – it hardly puts you in a strong negotiating position.
In an ideal world, you get in touch with investors early in order to build trust and familiarity first. Research shows it can take up to 6 months to close a successful investment round. Here’s our top advice on how and when to approach investors:
Put performance perfection over product perfection
Many startups put-off approaching investors believing that they must have a perfect product before getting in touch. By waiting until you achieve a “perfect product” however, you run the risk of running out of time, resources and capital. In which case, your books will look poor and your performance metrics may already be suffering – hardly the perfect proposition!
Instead, get in touch when your business is running as optimally as it can, before you even need the money at all. Plan ahead and even if you don’t need the investment immediately, you will be in a much more impressive position.
Get to know investors first
You will find it much easier to get investment from someone who knows you and has faith in your knowledge, ability and business acumen. It is never too early to go out looking for future investors. By anticipating future need for funding you will already have a good rapport with investors by the time it comes to seeking funding.
By engaging them, asking questions and following their advice you will also show willingness to learn and be able to put into action their knowledge and industry-expertise. This will offer opportunities for them to see your progress and future potential and set you up for a successful funding bid in the future.
Prepare your business plan and if possible a proof of concept
Before approaching any investor for a capital injection, it goes without saying that you should have a water-tight, realistic business plan. Don’t make the mistake of over-optimism. A glance over your metrics to date will show any investor whether or not your projections for the future are based in fact or fantasy.
A working prototype or MVP can also add significant weight to your pitch. If the investor can see a tangible offering like this, it will offer valuable data to demonstrate the business’ progress and viability. All of this should be backed up by a tried-and-tested core team of skilled individuals.
Polish your online presence
If open to discussion, the first thing a prospective investor will do is research you and your business.
- Clean up your Linkedin profile – update everything with clear business value proposition stated, all experience up to date and lots of endorsements from connections – particularly mutual ones if possible.
- Make sure your website looks fantastic and operates smoothly and quickly. You should also pay particular attention to UX. Investors won’t be impressed by a sloppy interface and will notice barriers to conversion more than most.
- Be active on social media – engage with the community, demonstrate thought-leadership and show clear ability to communicate your value proposition.
How to find investors:
Create a list of prospective Angels
When considering how to find investors, do your research on prospective Angel Investors in your industry. Things to consider include:
- who has invested in startups in your industry,
- invested in competitors,
- ask others in the industry if they know of anyone,
- attend industry events and talk to speakers or mentor figures,
- incubators or other start-up support programmes may also have recommendations.
Once you have this list, research and get to know the investor in as much detail as possible. Make sure they’re a good fit and get information on their past experience, specialisms and likes and dislikes. This information can set you apart in communications or if you’re lucky enough to get an introduction or meet them in person at an event.
Things to watch out for
- Make sure the person you’re researching actually has money. Investment income can come in ebbs and flows and you don’t want to waste valuable time pursuing an investor who isn’t in a position to offer capital at present. Make sure you’re pursuing people with recent and thriving investment action to negate this.
- Check that the person you’re pursuing hasn’t already invested in a competitor. Some investors use this as a dirty tactic to gain valuable information or undermine your funding efforts.
- Make sure you’ll be happy to work with the investor. They will have a huge say over the future of your business and you won’t be able to get rid of them once they’re locked in. Let the events of Season 2 Episode 3 of Silicon Valley be a lesson to us all. Ask other entrepreneurs who they’ve worked with, and try to garner as much information on prospective investors before you get in touch with them.
This is the number one preferable method of finding investors. In fact, many investors will only pay attention to applications via network referral.
- Leveraging your personal network will be of paramount importance here. Once again, pre-plan. Anticipating future need for funding will involve staying in touch with other well-connected individuals and not letting those connections turn stale over time.
- Speak to other founders who you know have successfully attained funding. Discuss your business and it’s progress. Ask them about strategy, timelines and advice on how to go about approaching investors. The ideal scenario here is that one of them offers to introduce you to one of their investors. We’d recommend not asking them directly though – remember they have a relationship to maintain with their investors themselves.
- If you’re not having much luck being offered a referral, it might be time to ask investors directly. Aside from approaching founders, examine your Linkedin network for mutual connections with investors and ask for a referral. The very worst that can happen is that you get ignored or told no. The best that could happen is attaining investment and being able to grow your business.
This part of the process is rubbish, we know it is. The worst part of getting funding is how much of it revolves around who you know, rather than what you know. Bristol-based Dffrnt have a really fantastic guest-blog written by Tumelo’s CEO, Georgia. She describes the process she went through fighting tooth-and-nail to bypass the “boy’s club” investor system to attain funding. Which she did, by the way!
Keeping the connection
If you’ve followed our first piece of advice and don’t quite require the funding yet, keep the connection warm.
- Ask for advice rather than money. As mentioned previously, if you’ve asked for advice and the investor can see you implementing this and growing as a result, they are far more likely to invest in you in the future.
- Regarding how to find investors: attend events they’re attending as a mode of touching base in person. (Obviously don’t over-do this so they think you’re stalking them, but appearing at a handful of mutual events will help you stay front of mind. If they’re speaking it will also help you get a feel for their personality)
- Keep it friendly and personal yet professional. Angel investors are just people at the end of the day. They won’t want to work with you if you come across as arrogant or dismissive to their input, regardless of how good your business idea is.
Whatever path you’re pursuing to gain funding for your business, here’s one of our favourite summarising pieces of advice from our partner Matt Franklin from Payaca (with some great tidbits of advice for Bristol-based businesses too);
“Fundraising is one of the trickiest areas to navigate and it’s very hard to find good resources on how to approach it. People in fundraising aren’t always upfront with their intentions which can make it even harder to navigate, especially if you don’t have experience of raising money before.
I would also say that it’s really important to filter the feedback you get from investors. I’ve found that often tangential or anecdotal experience on the investor’s part gets applied to your business model and it won’t always fit. Being open to feedback is important, but making sure you listen to the right feedback is even more so!
I would recommend Bristol Private Equity Club (BPEC) on this topic too. They have a very broad set of experiences which has been really helpful for us, bringing in a wide array of resources and insight. We still need more of this in the South West though!”
Other resources for UK start-ups
Resources for Bristol-Based start-ups