Making your pitch is just the beginning. Too many entrepreneurs squander the investor interest they generate by botching the follow-up. Here are four simple steps you can take that can make the difference between an oversubscribed round and abject failure.
A few rare pitches generate an immediate investment. Tweet This Quote
As an angel investor, I see hundreds of pitches per year. Most are rejected immediately. A few rare pitches generate an immediate investment (usually they involve a long-time friend with a killer product offering an investor-friendly valuation). But the challenge lies in the pitches that intrigue me without convincing me.
How entrepreneurs manage the fundraising process can have a major impact on whether or not they receive an investment. It may seem like blocking and tackling, but managing the fundraising process appropriately can be the difference between an oversubscribed round and abject failure.
The key, as always, is to consider the mindset of your customer—in this case, the potential investor.
1) The reason we haven’t invested is that we’re uncertain. Your job is to remove that uncertainty.
Potential investors are uncertain by definition—if they were certain, they’d say “yes” or “no,” because none of us enjoy keeping entrepreneurs dangling.
Instead of asking, “What will it take for you to invest?” which puts us investors on the spot, ask, “What are you uncertain about in my deal?” This will identify the problem areas you need to work on. It won’t identify the solution, but the investor probably can’t tell you the solution either.
2) We’re busy. Don’t make us chase you. Stay in touch without being pushy.
If you wait for potential investors to call you back, you’re going to be waiting a long time. Even a part-time investor like me might be talking with 30-40 entrepreneurs at any given time, and the situation is an order of magnitude worse for full-time investors like VCs.
Investors are ruthless with their time; if a deal is hot, they’ll chase it. If not, they’ll wait for the entrepreneur to make the next move. That means in most cases, you need to take matters into your own hands.
Investors are ruthless with their time. Tweet This Quote
I advise entrepreneurs to view investor relations as drip marketing—your goal is to keep touching your target market until it buys. The best way to do this is to send regular email updates. I’ve always advocated bi-weekly updates—weekly updates are too frequent; monthly updates are too diffuse.
Your update should convey what’s happened in your business – relate what you’ve learned, and ask for opportunities to receive help with advice or introductions. The goal is to provide enough information for investors to talk themselves into your deal.
Investors don’t like making decisions based on snapshots; they prefer having enough data to extrapolate with confidence. Your updates should provide that data, including key information like registered users, engagement, and yes, even revenues.
Keep your updates to the point. This is not your opportunity to philosophize or relate amusing anecdotes. Save those for the fanboys who will someday devour your company blog when you’re rich and successful. If you don’t deliver crunchy numbers and insights in the first paragraph, investors won’t bother reading on.
You don’t need any special software; a simple BCC to a list of email addresses will do, though if you want to use a mailing list software or CRM, that’s fine too.
3) When we signal that we want to engage, engage.
As you send your regular updates, certain investors will write back with suggestions, offers to help, etc. That’s a sign that they’re interested. Investors don’t waste time to be polite; if they write anything beyond, “Thanks for the update, keep me apprised of your continued progress,” that means you’ve got their attention.
Follow up immediately. If they have suggestions, ask follow-up questions and offer to stop by their office. If they offer to help, give them whatever they need (this often takes the form of an email that they can forward to someone else).
Investors rightly assume that if you won’t follow up with them, you won’t follow up with your customers either. How well you engage them serves as a proxy for your ability to sell to customers.
4) Ask for our money. Then take it.
Once you’ve engaged your potential investors and have had a successful interaction, ask for the money. Don’t assume that the goodwill you’ve built is cumulative. Remember, investors are busy. There’s no guarantee that they’ll feel the same about you a month from now.
This means you need to be ready. You need to be incorporated and working with a name-brand law firm (or an attorney who is an alum of a name-brand law firm). You need to know if you’re talking with a lead investor or not. For lead investors, you need to know what terms you’ll agree to. For other investors, you need to have standard investment documents they can sign (such as a convertible note). Don’t forget to set up a bank account—due diligence isn’t done until you cash the check.
Once someone has agreed to invest, redouble your efforts. Get them the required documents, and ping them daily until they’ve signed them. If you have to, drive to their office with the required paperwork. They could change their mind at any second.
An Unreasonable Challenge:
Making a successful pitch is the beginning of the investment process, not the end. Smart entrepreneurs execute the fundraising process with the same tenacity they use to sell their product. If you have already begun the fundraising process, your Unreasonable Challenge is to write and send your first investor update.
Update: I wish I’d mentioned one of the most important principles of investor relations—start developing your relationship with investors before you need their money. Think about the friends in your life who only call you when they need something. How do you feel about them? Exactly. Strike up relationships with investors you respect before you even have a company to pitch. And if they’re the kind of investor you want in your company, this will be a pleasure, not a chore.
Start developing your relationship with investors before you need their money. Tweet This Quote