The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What’s the best way to pitch a startup idea to investors?” is written by Diana Murakhovskaya and Irene Ryabaya, cofounders of Monarq.
“Fundraising is not a moment in time.” That’s the advice we
received from entrepreneur Andrew Weinreich at his Roadmaps bootcamp, and we were lucky to hear it early on our startup journey.
While pitch decks containing a compelling story—including proof of product-market fit, great traction, and a well thought-out competitive analysis—are absolutely necessary, they aren’t sufficient for nailing a successful raise. Convincing people to see your vision and part with their money takes time and meaningful relationships.
Relationships are even more important when you’re raising money from angels. Angel investors invest their own hard-earned cash, so after you’ve read their blogs, googled their favorite verticals, and stalked their LinkedIn pages, you have to put yourself in their shoes and ask, “What would make me hand over my money to this stranger I just met?” Most of the time, the answer is absolutely nothing. When the money is personal, you need to know the person you’re investing in.
The most common pitfall founders make when they want to grow their business is fundraising too late. They often think of the process as a discrete step in their startup journey—one moment in time, so after spending a lot of time and effort building product, gaining traction, and getting press, few have spoken to even a single investor.
Often, by the time a founder decides to fundraise and send cold emails to investors, it’s too late. When investors don’t know the founder, they have nothing else to go on, and therefore don’t trust the founder. They’ll often ask for more proof of how the business stands a chance at surviving when the first round of funding runs dry. As the founder scrambles to fulfill these investor requests, the day-to-day business operations take a back seat, and the very numbers which looked so promising quickly deteriorate as the fundraising stretches into months, and the need for cash becomes desperate.
If that doesn’t sound like a path you want to go down, try the alternative: Start building relationships with investors whose investment theory and history line up with your business long before you need the money. The best way to build a relationship with an angel investor is by opening up a dialogue and starting a conversation early. Many angels are proactive, so you can meet them at events, dinners, brunches, office hours, or on their blogs. Once you get them out for a coffee, ask them questions and learn what matters to them rather than jumping straight into your pitch.
Once you have their attention and it feels like a relationship that could work (you don’t need to win over every investor you meet), tell them what you plan to do, listen to their advice, and say, “Watch me.” Next time you meet, show them what you’ve accomplished since (it better be a lot), and tell them what went right, what didn’t, and what you’ve learned. Show investors how their input made a difference and discuss your future plans. It’s also a great way to test the waters of your relationship—almost like moving in together before getting married and having kids.
If the investor sees that you’re a person of your word, that you work hard, that you learn from your mistakes, and solve problems quickly, he or she will learn to trust you and believe in your business. When you decide you’re ready to take on investment, even if your friendly investors don’t invest, they are going to be much more likely to become advisors, tell you exactly what you need in your deck to succeed and, most importantly, make warm introductions to their investor friends.
Relationships and trust, built authentically over time, make all the difference between a successful raise and a desperate scramble for funding.