Most tech businesses will raise equity funding at some point in their scale-up journey. One of the most common questions we get asked is how to find investors and pitch to them.
Here are our top tips on what to do, and what not to do.
#1 Look inside your target industry
The angel investment and VC industry want you to think that they’re your best or only option. They have a massive vested interest in you and spend heavily on clever content marketing.
If you’re an early stage start-up, your investors are investing based on two things:
- How much potential they see in your concept.
- How much potential they see in your founding team.
The best companies you can approach are those that know you. The next best people will be those who know the problem that your product seeks to eliminate.
Your professional network
Usually the concept your working on is in a field where you have professional experience. Reach out to as many former managers and colleagues as you can and let them know what you’re up to. They’ll get your concept and they’ll know what you’re capable of. So they’ll be happy to give a warm introduction to senior management or investment teams.
Industry events
Attend niche events for your target industry. Speak to as many people as you can and be passionate about what you’re doing and why. Even if you don’t find an investor, you may find a customer. At a minimum, you’ll have some great conversations that help you validate and refine your concept.
Customers
If you’re post-revenue, consider approaching customers about investing. This strategy works best if your product is sold mid-market or at enterprise level. These customers have capital and may even have their own corporate finance teams.
It’s likely you’ve spent time working with them to install and integrate your product. So, they know you and have a vested interest in your success. What’s more, the opportunity to influence your feature roadmap may be really appealing.
Some of our most successful clients have met all their early funding needs this way.
An analogous approach, for B2C businesses, would be equity crowdfunding. Pitching your crowdfunding at existing or ideal clients is an excellent strategy. They’re far more likely to buy into your pitch. You can sweeten the deal by offering “insider” access, such as greater input to your product roadmap or exclusive discounts.
#2 Community counts
The next best strategy is to find a friendly tech founder who’s a few steps ahead of you on their scale-up journey.
Angels and VC’s often use their existing investments to find their next opportunities.
Investors have confidence in founders they’ve already invested in. They know they have great commercial instincts. And they know they keep their finger on the pulse of the tech world.
Attend as many tech meetups as you can. They’re a great opportunity to meet other founders. And, the setting makes it easy to strike up a conversation.
It may take time to get that golden introduction, so you need to start this process early. However, you’ll meet some great people along the way. You’ll benefit from their insights and advice. And, you’ll keep your own tech knowledge fresh.
#3 Investor networking events
If you’ve tried both of the above, but haven’t had any luck, the next best opportunities are investor networking events.
Do not go down this route until you’ve already tried both of the above alternatives. This option may seem more direct, quicker, less effort, but it has its disadvantages. Always keep in mind that:
- The better events are pay-to-pitch. The more you pay the better the quality of investors you’re getting access to.
- It’s not only the ticket price you pay. Investment sourced at these events will likely be at a lower price per share than you’ll get from a warm introduction. First impressions count. At these events, it’s hard to stand out from the crowd.
- Go to free events and you’ll be meeting the predatory bottom of the industry.
To get the most out of them, practice your elevator pitch until perfect. Prepare to be challenged on two fronts:
- You need facts about what the company has achieved. What they care about is evidence you have traction – via sales growth or pre-orders.
- You need facts about what you’ve achieved as founders. Be ready to sell yourself. You’ll need a strong track-record at other start-ups. Or, you’ll need an impressive CV showing senior roles at large companies.
Finding events is easy. You’ll find plenty of opportunities via Eventbrite, Meetup.com, or similar sites. If you based in or around London, get in touch and we can recommend a few events that our clients have found useful.
… what not to do
Don’t get a bad rep
The investor community is small and tight-knit. Angel Investors and VC’s hate:
- Unsolicited direct approaches.
- Approaches from pre MVP founders who are far too early in their development.
- Having their time wasted by founders who haven’t prepared their pitch well enough.
- Overconfidence, unrealistic claims, and unsubstantiated claims.
These guys get pitched at hundreds of times a month. It’s mostly by underprepared founders with poor or unclear investment cases. This isn’t a numbers game, scattergun approaches don’t work. If you do any of the above, word will get around and you’ll soon find yourself blacklisted.
Don’t get conned
Always be cautious about who you’re talking to. Unfortunately, you’ll meet potential investors who aren’t who they claim to be. There are “funding advisors” that masquerade as potential investors to build a relationship with you. Once they’ve broken the ice, you’ll discover they have no money to invest. What they want is free equity in return for introductions.
Now, there are genuine funding advisors out there. But, because they’re good at what they do, they’ll never resort to deception to sell their services.
Good funding advisors are well networked and can introduce you to high-quality investors. They’re skillful at making connections that fit well. If you can’t reach those investors any other way, this may be a win-win relationship. But, keep in mind that advisors who are this well-networked will be expensive.
If you do bring in a funding advisor, make sure you have a watertight contract in place. This should set out:
- What type of investor you’re looking for. Based on objective criteria. So that you don’t waste money paying for introductions that aren’t useful to you.
- Clear (and reasonable) obligations on you to engage with investors in good faith. You don’t want to be coerced into following through on a bad offer. Or end up paying the introducer the full success fee so that you can walk away from negotiations.
Always try and negotiate a fee weighted towards a completed investment, and away from initial intros.
P.S. whenever you’re ready …
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