How entrepreneurs should choose the right investors?
In other words, how can and should you choose the best investors for your startup as an entrepreneur?
On the surface, first-time entrepreneurs may be forgiven for thinking that fundraising is all just about pulling in the amount of money they need.
Securing the best terms on that may be second on their list.
However, selecting the right investors is going to prove to make all the difference in how everything else goes from here on out.
This isn’t just about picking the most famous VC firm or celebrity shark investor either.
It is about picking the right investors for your specific venture, at this moment.
The Ultimate Guide To Pitch Decks
- 1. The Importance Of Choosing The Right Investors
- 2. The Exit
- 3. How Decisions Are Made
- 4. The Support You Will Get
- 5. Other Investors
- 6. How To Find The Right Investors
- 7. Know What You Want & Need
- 8. Research & Short List The Ideal Investors
- 9. Determine If The Timing Is A Match
- 10. Get Introduced
- 11. Screen Them
- 12. How To Land The Right Investors For Your Startup
- 13. Build The Right Relationships
- 14. Craft A Targeted Pitch Deck
- 15. Perfect Your Verbal Pitch
- 16. Hone Your Pitch In Reverse Order
- 17. Land The Right Lead Investor
- 18. Start Repeating For Your Next Round
- 19. Summary
The Importance Of Choosing The Right Investors
Choosing the right investors is probably the most influential factor in the life of a startup.
It is true that funding is what makes or breaks 90% of startups.
Yet, your investors will directly impact how that money is used, what additional money is available, or not, and the path your venture heads in next.
Do not underestimate this. You are putting so much of yourself into this venture.
It must seem silly not to give an appropriate amount of attention to the one thing that will make or break your vision.
These are some of the ways in which your investors will affect your company.
Your investors will directly dictate your exit and the ultimate outcome of your startup.
Chances are that the decision to go public, try to grind it out long term as a private company, or to accept an acquisition offer will lay mostly in the hands of your investors.
They can either help maximize this event, and ensure the mission continues to head toward its full potential, or they can cost you everything.
You should be sure that you are in close alignment before getting married to them. Or at least that you’ll have the power to make the final call.
See How I Can Help You With Your Fundraising Or Acquisition Efforts
See How I Can Help You With Your Fundraising Or Acquisition Efforts
How Decisions Are Made
All of your future decisions can depend on your choice of investors.
Whether it is the voting rights assigned with their shares or their seats on your board.
Or the power they have over future funding, your investors do have the ability to control your decisions.
Even if you have a majority, they can certainly make things challenging and difficult if you go against their opinion.
Of course, in many cases, they can also fire you if you aren’t complying.
While there may be many personal preferences along the way, the most impactful may center around your growth, profitability, and how big you will have to get, and how fast.
Are they going to make you sacrifice everything that is most important to you for their own agendas?
Or do they have complete belief and confidence in you, and will let you do what you think is in the best interest of the mission?
You’ll factor in all these considerations when learning how entrepreneurs should choose the right investors.
The Support You Will Get
What experienced entrepreneurs get that first-time entrepreneurs typically don’t is that the money is probably the least meaningful factor in getting funded and bringing in outside investors.
What they can bring to the table in other resources and value can be far more influential.
These may be tangible resources, such as talent, facilities, and data. Or it may be connections and distribution channels.
It can be the doors they can open for you, as well as future financing.
One of the most pivotal factors here is the support that you will get both in good times, and bad times, as well as when you may need to pivot.
It is wise to evaluate this closely. It may make all the difference in your success, or whether your competition ends up with the upper hand at the most critical moment.
The investors you bring on board will directly impact the other investors that you are able to attract and bring on board.
Yes, having notable lead investors may help encourage others to come along, participate, and perhaps with an even smoother process.
However, there may be personal dynamics that play a role in who wants to have their money tied up with these same investors. Do they play well with others?
Then there are their connections and influence. Do they have the relationships and influence to get other investors to jump in on the next round?
This can also make a big difference in how easy and efficient future rounds are.
That’s why you should know how entrepreneurs should choose the right investors.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How To Find The Right Investors
Now that we understand what a big difference the right investors can make, how do you go about finding them?
Who are the right investors? How do you know they are the best choices? How do you bring them in?
Know What You Want & Need
The very first step to choosing the right investors is to get complete clarity on what you want and need in them.
The right choice will definitely take the long term into account.
Your investors in each round will impact decisions that will determine the long run, as well as each following round.
However, this round is also critical to getting through to the next round. As well as the ability to raise a new round of funding.
Specify what exactly the investors in this round should embody, offer and do for you.
This may include:
- The amount of funds they can pledge
- The terms and structure
- Specific expertise, by stage, strategy, or industry
Research & Short List The Ideal Investors
Obviously, you are going to have to do some homework to see which of the many investors out there match what you are looking for.
Be prepared to do some thorough research. Understand as much as you can about them.
You may use sites like Crunchbase and LinkedIn in this process. As well as by speaking with other entrepreneurs that have engaged with them, or those that have worked with them.
Then make a reasonably tight shortlist. One that optimizes your time by focusing on the right investors.
Though, which also gives you enough options to negotiate from a position of strength, and to allow for anything you’ve overlooked.
Determine If The Timing Is A Match
One of the most important factors in investor matches is timing. They may check many of the boxes of criteria on your list, but if your timeframes don’t match it may just not work.
This may include where they stand in liquidity and funds available to invest. As well as their time frame for cashing out of your company to pay back their investors in return.
Clashes in these timelines may prove very problematic and fundamental.
If these investors or their personal representatives are not already in your personal network, then you need to get connected to them as soon as possible.
You can use the media, press, and your marketing to attract them to you. Or you can also hack your way in with introductions.
You can leverage your existing network for personal introductions. Or you can use your connections on LinkedIn for introductions.
Or get with an M&A advisor who can make warm connections. These expert professionals can advise you on how entrepreneurs should choose the right investors.
After you’ve gotten connected with your shortlist of potential investors, it is time for further screening.
Develop the relationship passively well before you need to begin a fundraising campaign. This will help you get to know their true selves the best.
See if the individual investors or partners are really a good fit. You will be working closely with them from here on out.
Screen and interview them. You should be vetting your potential investors at least as much as they will be scrutinizing you in the due diligence process.
Take your time understanding how entrepreneurs should choose the right investors.
Before moving on to understanding how to land your investors, check out this detailed video I have created. In it, I talk about some in-depth nuances of how to find investors for your startup. You’re sure to find it helpful.
How To Land The Right Investors For Your Startup
So, now that you have not only identified the best cohort of investors that you would like to bring on for your next round, how do you actually get to closing them, inking the deal, and putting the money in the bank?
Build The Right Relationships
Use the direct connections you’ve made with investors to build trust, confidence, and likability.
Use your surrounding relationships and connections to prime investors to be looking to invest in you.
By the time you are ready to actively raise or accept money, then it should be a foregone conclusion that they will invest.
Craft A Targeted Pitch Deck
You not only need to commission an incredible pitch deck, but one which is specifically targeted to your ideal investors.
Perhaps even specifically to the individual investors you will be pitching.
This can often be done with a few tweaks to curate versions of your deck for these investors.
This likely includes highlighting the specific data or elements of your product or business model that they are interested in investing in.
As well as curating the narrative and story about the problem and your company that best resonates with them.
Take into consideration others they have invested in before. Including, which of those have been successes versus failures.
Perfect Your Verbal Pitch
Not only do your pitch deck and slides need to be curated and targeted for these ideal investors, but so do your verbal pitch and live presentation.
Hone Your Pitch In Reverse Order
Even the best pitches to a carefully selected shortlist can suffer many noes.
Instead of starting with your top choice. Consider starting pitching from the bottom of your list up. Then keep on improving and honing your pitch and deck.
If you land those first investors, then you will have more power as you move up the list. If not, your most important pitches will be your best.
Land The Right Lead Investor
Depending on your fundraising strategy you may need several big investors or hundreds of smaller investors in this round.
Most often you will face many noes and declines or maybes. At least until you land your lead investor. Everyone wants someone else to go first.
Land that lead investor, and all of the others will come far easier. So, instead of worrying about pleasing many.
Focus on landing the lead. The others will come to you.
Start Repeating For Your Next Round
Savvy entrepreneurs begin strategizing, planning, and positioning for their next funding round even before they complete the one currently on the table.
In fact, you already want to know who your ideal investors are for your next round as you create your target list for this one.
It is never too early to start. Get ready now.
Success as an entrepreneur is not only about bringing in the money, but about bringing in the right investors, at the right time.
This is why it is advisable you learn how entrepreneurs should choose the right investors.
This begins with clarity on who is going to be best for this mission. Then make the needed connections. Then secure those investments.
Give this part of your business the attention it deserves. It will make all of the difference in what comes next.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.