Here’s the Best Way to Approach an Investor
The Entrepreneur Insiders 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 for young startup owners to develop relationships with angel investors?” is written by Cack Wilhelm, a principal at Scale Venture Partners.
As a former sales rep at Oracle (ORCL) and Cloudera, I learned acutely the value of relationships. People want to buy from people they know and trust, but familiarity and trust do not come overnight.
Today, people ask me what venture is like vis-à-vis software sales, and my answer is that they are both quite similar. One is selling a product (software) and one is selling money, though investors bring more to the boardroom and the founding team than raw capital.
Herein lies the importance of building relationships. Every keen entrepreneur knows that each investor brings a different value, and every keen investor has a tailored shopping list at any given time. Finding the right match can seem to the entrepreneur like one in a million, and it may well get successively harder with each capital raise.
Blasting out emails and frequenting conferences with the hope of meeting and creating relationships with numerous investors is the wrong approach. The better approach is to answer two sets of questions:
- What is it we are selling? What markets are we targeting? What is the relevant ecosystem? What will make me believe we have reached product-market fit?
- What investors and/or what firms or angel networks have spent time in this area in the past? What makes me think he or she would invest in my idea or my company? Is there historical reason to believe that this is a market the investor and firm will pursue?
On the first point, I am often surprised that entrepreneurs have trouble articulating a concise value proposition. You should be telling me why I want to buy! Thinking through this and knowing the landscape will make each successive investor meeting easier.
On the second point, step back before hitting the market and make a short list of those investors who are the right fit. Just as software sales has moved to solution selling (whereby the sales rep sells the solution to a known customer pain to an enterprise), entrepreneurs should approach all fundraising rounds as an exercise in “qualifying” investors up front. You want to show up at the office delivering just the product or market solution the investors are seeking.
To ensure investors are interested in buying what you are selling, figure out:
- At what stage does this firm invest 80% of the time?
- What is their sector interest? How granularly do I care (B2B vs. B2C or specific down to the market)?
- Do they have “budget” (aka funds)?
- Does this investor have check-writing authority? Is this the proper “champion” to lead the deal?
- Does this firm have geographic limitations or are they open to all locations?
It seems obvious, but do this early and often. Spend time building investor relationships with only those who fit all qualifying questions. Just as in sales, getting to “no” is nearly as advantageous as getting to “yes” because it gains you back a scarce commodity: your time.
Cack Wilhelm is a principal at Scale Venture Partners. She focuses on investments in next-generation enterprise software companies, with a particular emphasis on cloud infrastructure, big data, DevOps, and security.