If you are an entrepreneur, you are surely familiar with the painful due diligence process that is part of the fundraising ordeal. Any good investor is going to do due diligence on your product, your team, your go-to-market strategy, and more. What you might not be familiar with is the due diligence that an entrepreneur does when choosing the right investor.
It's been said many times before that taking money from an investor is like marrying them, since they will be your partner for the foreseeable future, and just as you wouldn't marry just anyone, you shouldn't take investor money from just anyone.
So how do you choose the right investor, and once you've chosen them, how do you initiate the first contact?
Here is where a competitive landscape comes in.
Choosing an investor involves examining your competitive landscape, which you should have already created, and seeing which investors are interested in your sector. However, it's a very delicate balance between an investor who likes your space and one who is already invested in a direct competitor.
You are going to want to find someone who invests in your space and your stage, and who is not already invested in a direct competitor. There are endless databases out there of investors, but the most efficient way to find an investor is to see who invested in the other companies in your landscape that are not direct competitors.
Once you identify a relevant investor that has invested in your space, now it's time to go to that investor's website and see what they say about what their comfort zone is when it comes to stage. Do they invest early? Late?
Once you have isolated that relevant investor, now it's time to go a little deeper.
Speak to founders who already raised money from that investor.
Remember, it's like a marriage. No one can tell you what that investor is like better than a founder who took that investor's money in the past.
Here are some questions you might want to ask that founder: How long was the due diligence process? Did that investor drag it for longer than it needed to be? What happened the day after? Was that investor helpful? Did the investor make demands of any kind that you didn't expect? When things got rough, did that investor step up?
Those are only some examples of questions you might consider asking, but you should be asking as many questions as possible, so you can make a more informed decision about whether to take that investor's money.
Now comes the fun of getting on the radar of that investor.
So you've done your research, and now you have a list of three relevant investors. Now it's time to get in touch with them, but this stage has to be done right just like the previous stages. If you don't make a good first impression, it could ruin your chances of raising capital from that investor.
So what is the best way to get in touch with an investor? In two words: Warm intro. In other words, do not ever cold pitch an investor, not over the phone or even by e-mail.
Find a mutual contact, preferably someone the investor respects, and have them introduce you and add a nice word about you.
Who is the ideal mutual contact? That same founder you spoke to before. There is no better person to introduce you to an investor than a CEO whom that investor already backed, assuming of course it was a successful investment.
By the way, it's important to mention that this applies not only to investors, but also to journalists, potential partners, and pretty much everyone else you're going to engage with. Always aim to get a warm intro.
So you got a founder who agreed to make the intro--now what?
You've made it this far, and now you just need to seal the deal. You've found the investor you want to pitch, and you've found the CEO who agreed to introduce you--now what?
Like any business intro that you are asking for, don't make the person doing you that favor do all the work. You do the work for them. Instead of asking them to write the entire e-mail intro, save them that time and do it for them.
Let's say the investor's name is Michelle and the person introducing you is David. Send David an e-mail that reads something like "Hi, David, I know you're close with Michelle and I think she'd be the perfect investor for my company. My deck is attached and I'd really appreciate an intro. Would you be able to facilitate that?"
Why is this so important? Because now David can click Forward, add one line about you, and hit Send. You just saved David the time he would have invested writing that e-mail with all the context. He's doing you a favor. Try to make his life as easy as possible.
If you follow the above instructions, you will have identified the right investor, found the person to introduce you, and gotten that introduction by drafting the e-mail the person can forward.
Now it's time to get ready for that first meeting with the investor.