The Real Reason It’s So Hard for Startups to Find Investors
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 “When is the best time to look for investors?” is written by Promise Phelon, CEO of TapInfluence.
Every business needs working capital, and that means finding good investors. Who you decide to work with isn’t just about the bottom line. It’s about building relationships. It’s important to remember that investors are investing in you as much as they’re investing in the company.
In addition to financing, investors provide guidance and feedback, and you’ll benefit from their experience working with other entrepreneurs. Your investors will be with you for the long haul, and they’ll be there to help you through various stages of business growth. But these relationships don’t come easy—they take time to develop.
Still, you don’t want to wait until you need the money to start seeking them out. In fact, the best time to look for investors is precisely when you don’t need their money. The best investors will want to track the progress of your business over time to get a true assessment of the execution risks. This is why finding an investor is hardest for startups: developing a track record takes time.
See also: 3 Ways to Get Investors’ Attention
Instead of rushing to find an investor at the last minute, you should expect to build long-term relationships with potential investors by demonstrating passion, integrity, and commitment to your startup’s mission. Taking time for this courtship period is the best way to get to know each other, determine whether or not the relationship is a good fit, and get aligned with your company’s short and long-term goals.
As with so many aspects of business relationships, it’s a good idea to start your investor search with referrals and introductions from trusted friends or advisors. The better the person making the recommendation knows you and the investor, the more likely he or she is to make a recommendation that will be a good fit.
Even if the initial introduction doesn’t work out, it might lead to another one that does. Investors are busy and hear thousands of pitches every year, so warm introductions are valued highly and a good way to get their attention. This should be a constant process of meeting and talking to new people, building your story, and learning along the way. If you’re truly committed to taking on outside capital, you should spend roughly 15% of your time talking to investors.
And while there’s no doubt that money is fuel, one great investor can have an immediate impact on your business growth. But a structured, fast-moving fundraising process can be stressful and intimidating. It can feel as though time is working against you. But giving yourself the space to build relationships with potential investors gives you time to do your due diligence; build rapport, trust, and alignment; and ultimately, find out if the investor is as into you as he or she seems.
Keep in mind that you’re not just vetting your investors—your investors will be vetting you, too. You want them to know they can hold you accountable, not just during the vetting process, but to your projections and targets. It will serve you well to be honest and transparent throughout the process. Assuming you get to the point of due diligence with them, they will leave no stone unturned. If they discover something unexpected or contradictory, all of the hard work and time you put into building the relationship could be lost.
Ultimately, today is the best time to look for an investor. Always be raising funds. As your business grows and develops, the right investors will take notice and want to be part of helping turn your business into a success. And when you take your time making the right connections, your investors will become some of your biggest supporters, allies, and advisors.