How to build trust with startup investors? Trust is one of, if not the most important factor, when it comes to getting funding for your startup. So, how do you build that trust with your investors?
There are many elements involved when it comes to fundraising for a startup. While it can be easy to be distracted by practicing your sales pitch, pushing traction in customer acquisitions, thinking about valuations, and everything else, trust is the most basic foundation that a good funding round is built on.
All great entrepreneur and investor relationships begin with a sound level of trust. If you nail it, there can be a lot of advantages. As well as disadvantages if you have failed to establish it early. Some are obvious. Others may not be at first.
The Ultimate Guide To Pitch Decks
So, how do you go about establishing trust with startup investors, so that you can get the funding you need, and from the best investors, on the best terms? As well as for ensuring long-term success?
Even as you’re reading up on strategies for connecting with investors, you might want to check out this video I have created. In it, I have talked about some in-depth pointers on how to build trust before sending a pitch deck. You’re sure to find it helpful.
Here is the content that we will cover in this post. Let’s get started.
- 1. Why Trust Is So Vital In Startup Fundraising
- 2. The Trifecta
- 3. Other Elements Of A Fundable Startup
- 4. The Problem You Are Solving
- 5. Market Size
- 6. The Team
- 7. Progress & Traction
- 8. Trust Is Number One
- 9. What If There Is No Trust?
- 10. How To Build Trust With Potential Startup Investors
- 11. Referrals & Warm Introductions
- 12. Build The Relationship Over Time
- 13. Prove You Can Be Trusted
- 14. Other Trust Signals
- 15. Logos
- 16. A Strong Pitch Deck
- 17. Your Online Resume
- 18. Team
- 19. How To Build & Maintain Trust Once You Are Funded
- 20. Board Meetings & Board Management
- 21. Keep Delivering On Your Milestones
- 22. Be Transparent About The Challenges
Why Trust Is So Vital In Startup Fundraising
Here’s what you need to know about trust in the funding equation, and the lack of it.
Pitching and running a fundraising campaign is just another form of selling. In the sales world, it is recognized that there are three elements needed to close the deal. These are known as the ‘know you, like you, trust you’ trifecta.
If people don’t know you, they cannot buy what you are selling. If they don’t like you they are not going to buy what you are selling. Though even if they know you, and like you, but don’t trust you, they are not going to invest in you.
To some degree, you will be building on all three of these pillars with each fundraising campaign. Just don’t leave out trust. If you aren’t intentional about it, then you might still be struggling after being turned down by your 300th investor.
See How I Can Help You With Your Fundraising Efforts
See How I Can Help You With Your Fundraising Efforts
Other Elements Of A Fundable Startup
Of course, trust alone may not get you funded. There are certainly other criteria that the vast majority of startup investors are going to be looking at and evaluating.
Trust will make everything easier. Some early-stage investors, especially friends and family in your own personal network, may invest based on trust alone. At least small amounts of pre-seed money. Though even angels in your extended network are going to want to know what they are investing in and will have their own opinions about what makes sense. This is why you should know how to build trust with startup investors.
Other factors that investors look for in a fundable startup include the following.
The Problem You Are Solving
Far more important than your current solution or product is the problem you are going after.
It needs to be a proven problem that they can believe in. It should be validated and clarified. Even better if it is an urgent problem that people are already spending money to solve for themselves.
The size of your market, and how big it is expected to grow is a major concern for investors.
This one data point directly influences the potential for your startup, and the possibility of them generating an acceptable level of return on their invested capital.
This alone can make or break many startup ideas.
Ideas are cheap and plentiful. Even as rare and unique as you might think your idea is, there is a good chance the most desirable investors have seen it pitched to them several times before. Perhaps even this week. For the investor, it is all about picking the right team to back in this space.
Progress & Traction
You’ve got to be able to execute and actually make things happen. If you’ve been working on this hobby for four years, and still only have a non-functioning prototype, with zero sales, that is going to be scary in most scenarios.
The number of customers, sales, revenues, and dollars of profit you have may be much less significant than how fast you are making improvements. Though you must have traction.
Trust Is Number One
You can check all of the boxes above, and more, yet without trust; you still may be a long way from getting funded. You could find that you are wandering around the money desert for months or years. All while burning precious time and energy.
If you have trust, yet may be weak in some of these areas, you can find potential investors who will mentor you, and get you in shape to get funded.
Just put yourself in their shoes. If someone randomly approaches you on the street you might give them $1. You probably aren’t going to write them a check for $1M to go start a business.
Whereas, if a friend you’ve known for several years poses a business proposition to you, you’d probably at least consider it, and look at the details.
Think about all of the other scenarios where you invest, park, or spend your money. Much of that has to do with trust. How many small things for less than $100 do you buy today without at least looking at their reviews? So you see, knowing how to build trust with startup investors is critical for getting funding.
What If There Is No Trust?
Even in the coldest financial transactions, like applying for a business loan from a bank or online lender, they are going to want to look at some measurements of trust. Even in the form of simple data. Like your credit score, income, employment history, assets, and resume.
In equity funding, we have seen that it is possible to go on a TV show, or a crowdfunding platform and raise money.
However, in most cases, it is reasonable to expect that a relationship with no foundation of trust is going to warrant investors offsetting that extra risk with less attractive terms.
Just as if you have a low credit score, a credit card company is going to give you a much higher interest rate, and lower credit line, and vice versa.
You may also even question why they are investing in you if they don’t have any basis to trust you. At least you may expect to give up more control of your business, deal with more babysitting from your new board members, and be prepared for ultimately being removed from your own company if they decide that they don’t trust you later on.
How To Build Trust With Potential Startup Investors
There are a variety of actions that you can take to establish and build trust. Here are some of them.
Referrals & Warm Introductions
Referrals and introductions always come with some inferred trust. If someone you know, like, and trust introduces someone else to you, you naturally transfer some of those feelings onto that person. This is also going to apply to potential hires for your company, vendors, and future investors.
The reverse works as well. So, who do you know that can introduce you to the investors you want to fund your venture?
There are a variety of options here. It can be through your LinkedIn or college network. It could be through past investors or fundraising consultants. Whatever may be the channels you choose, knowing how to build trust with startup investors should be a priority.
Build The Relationship Over Time
We may get instant instinctual gut feelings about people or companies. Yet, we’ve all probably run into situations where that hasn’t quite panned out as expected. They might seem to have become quite different people later on. Or all those promises made before the sale never materialized, and you may wonder if all the reviews were fake.
Sure, some people have fallen in love at first sight, got married in 30 days, and put in the work to build a lasting relationship that has survived and thrived for years. That’s usually the exception, not the norm.
That’s why people date first, right? That’s why startups raise money in multiple rounds over time, not in one scoop overnight.
So, start building those relationships early. Ideally, this will be months or even years in advance of your need. It is not uncommon for founders to end up raising from people they’ve known for 10 years. If you are behind, then be sure you are building these relationships for the next round, before you even close this one. In fact, who you accept capital from now might just impact your company’s trust level in the next one.
Prove You Can Be Trusted
The definition of trust is really believing that someone can and will do what they say.
Unfortunately, while it sounds so simple, it is so rare today. This is why trust is so important.
You accomplish trust by demonstrating that you both can and do what you say. This may be casual mentioning and talking about your plans and goals with investors, and updating them on your progress, well before you ever attempt to pitch them.
Or it can be more organized in the form of attractive investor updates that you publish and circulate.
Other Trust Signals
Here are some of the other ways that you can portray trustworthiness and make investors more confident in investing in your startup.
Just like introductions and referrals convey trust, so can brand names. If you have notable customers, you may include their logos on your website.
You can also run strong press release campaigns, and reference those. Which also may provide some additional credibility.
Grants or business plan competitions you’ve won, or other nominations and awards, can work similarly.
A Strong Pitch Deck
A strong pitch deck is one of the first ways to make a great impression. Or break it.
Many of these trust and credibility elements come together in your pitch deck, including what references you include in your appendix.
Your pitch deck really shows potential investors if you know what you are doing. Even from your pitch deck design and the number of slides you use, they can tell whether you’ve done your homework, and are competent, or not.
This also includes your financial forecasts, and business and marketing plans.
Your Online Resume
What are investors going to find when they Google you? Will it create more trust or more questions about your trustworthiness and reliability?
What shows up in general Google searches about you and your company? What is in your LinkedIn profile? Are you on Crunchbase? What do your social media feeds say about you?
The above applies to your whole team. Especially your cofounders, key department heads, and advisors. Do they add trust, or take away from it?
What about your previous investors or others on your cap table? If they are familiar with you and your company, your efforts are more likely to be successful. So, work on how to build trust with startup 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 Build & Maintain Trust Once You Are Funded
Building trust doesn’t end when you sign the term sheet or put the money in the bank.
You need your investors to continue to trust you. You want to maintain it and strengthen it. Trust is hard to win and so fast and easy to lose.
If you want your business to run as smoothly as possible, to get the most value from your investors, and to get follow-up investments or introductions to other investors and resources from them, this is a must.
Board Meetings & Board Management
How you engage with your board members during meetings, are efficient with their time, and listen to and apply their feedback all have an impact.
Keep Delivering On Your Milestones
Be sure you’ve set bold, but attainable milestones. Keep on demonstrating how you are making progress toward those milestones and are putting in the work. Show them that you can hit those goals if you want to earn more funding.
Be Transparent About The Challenges
It is easy to be transparent about all the good things. It is much harder when it comes to the challenges and things that are not going so well. Yet, this is when you really earn trust. Be open about it. Only then can they step up and help you solve those issues.
Knowing how to build trust with startup investors goes a long way in ensuring the long-term success of your business.
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