How to Start Talking To Investors
We wrote a few weeks ago that the question we're asked most frequently as entrepreneurs and partners is "how do you divide up the work?" Well, coming in a close second is, "How are you funding your business?" Like most start-ups we've gotten Altruette off the ground with our own savings and a few family and friends loans. But we're aware that eventually, if we can make Altruette as big as we dream it can be, it's going to take outside investors. Now even though we worked together at Fortune for a decade covering business and finance, we have to admit that the hows/whys/wheres/who's of raising capital are still a bit mysterious to us.
To help demystify the process we called Brian Rich, managing partner and co-founder of Catalyst Investors. Catalyst is a growth-equity shop in New York City that specializes in tech investments, including cloud computing, wireless networking, and digital media. Not only does Rich evaluate hundreds of companies a year, he's also a regular on the speaking circuit--so knows how to talk shop in plain English. In other words, he was the perfect guy to ask the most basic questions of all: How do you find the right investor, and how do you convince them to invest in your business?
Rich advises targeting your search very carefully. "Our industry has become highly specialized," he explains. "I had breakfast with a guy this morning and all he looks at is venture investments relating to payments." But whether you own a bagel shop or the next potential Facebook, there's somebody out there who wants to make investments in your field. Four resources Rich recommends to target your search: pitchbook.com, quora.com, www.capitaliq.com and www.preqin.com. [Rich notes that some of the above sites require paid membership.]
Once you've identified good prospects, Rich says that highlighting a personal connection goes a long way. He says that even if it's a distant connection, such as knowing someone in common on LinkedIn, that can help set a cold call (or cold email) apart from the pack. "Ultimately it's not going to be why I invest in you," he explains, "But it's a reference point and that can really help."
Most companies approach Catalyst after hearing Rich or his partners speak at conferences, or are identified by the firm's group of advisory board members who are constantly on the lookout for hot prospects. For the intial contact, Rich recommends you write a bare bones pitch: an email with a one-to-two page attachment stating: What you do, key metrics of the business, how much money you need and what you're going to do with it. That's it. "Don't send an email with a diatribe," says Rich, "just get to the point."
Rich estimates he probably only meets (in person or over the phone) with about 10% of the companies that pitch him. But if you do get a meeting, there are a few rules that entrepreneurs should heed. First, assume the meeting will be one hour max–and plan a succinct presentation accordingly. [I can't tell you the number of times during our conversation that Rich stressed entrepreneurs should keep it short!] Also, says Rich, "If you're going to bring a whole team make sure everyone has a talking role. My antenna go up if five people come in and only one talks!" That scenario makes him think either the CEO is too hands on, or the supporting players lack the self-confidence to contribute–both red flags for investors. In the end, Rich describes a successful pitch to investors as similar to a real estate. "Have you ever been shown a house or an apartment by a great broker? All the lights are on, everything is tidy, they've thought how they're taking you through the house and which views they're going to emphasize?" If as an entrepreneur you can do that, you're on your way to making the sale.