If you are a startup and your goal is to become the next Uber or AirBnB the chances are you have already considered fundraising. Reaching out to investors can be lengthy and complicated process, here’s how to do it:
One Sentence Pitch
Before you start, make sure you can express your startup concept in one sentence. If you can’t say it in one compelling sentence you have a problem. People like simple things, especially if it is something novel. Our brains fear complexity, so you must ensure you are able to convey your idea in an efficient way.
The key to creating an effective one sentence pitch is to avoid vagueness, technical terms and meaningless buzzwords such as “disruptive”, “innovative” etc. A good template for developing your one sentence pitch has been created by Adeo Rossi from Founder institute:
How To Find Investors
If you live in Silicon Valley, finding an investor is relatively easy. If you live anywhere else in the world and you’re not connected try the following:
- Leverage your network – ask for referrals from anyone you know, even the investors that turned you down (they might know someone for whom you’re a better fit)
- Try going to meetups and industry events – look up events organized by local angel investor association or find networking events on meetup.com
- Internet – use Angel List search, lookup startups in your industry on Crunchbase and see who invested in them, have a look at CapRally too
Investor Due Diligence
The best way to approach an investor is to meet them via referral. The second best way is a cold email. Many VC’s made successful investments, where the initial point of contact was a cold email. For example Box founders got their first investment by emailing Mark Cuban.
Before you send any emails make sure you have done your due diligence. Have a look at the portfolio of the investors, understand what kind of investments they made and what criteria matter to them. Read couple of blog posts if they have a blog.
The Cold Email
Investors get hundreds of emails daily. With hundreds of emails, the chances are that 90% get deleted at the first glance. That many emails requires full time attention but the job of the investor is making deals, raising funds and managing their portfolio.
To get into top 10% make sure your email is concise, clear, short with a powerful and relevant subject line. A good guidance is this video by Jason Calacanis. Calacanis says he gets 500 emails per day. He says the people that get a response to their cold-email do the following:
- They attach mockups, screenshots or videos of gorgeous products
- They send charts showing traction
- Write clear and concise emails, free of typos and using as few words as possible
- They ask for advice not money
- Typically connect with the investor by saying something non-generic that’s relevant to something that investor wrote, did or said.
In his video he also recommends a structure I find to be one of the best I have seen so far:
So basically a 2-3 sentence grammatically correct and personal email, showing the product wireframes, screenshots, videos or URL link:
- Intro: Dear X investor
- Sentence 1: Personal hook (I really like what you wrote in your xyz blog post) make it specific (I agree with abc and I would only add that xyz)
- Sentence 2-3: 1 sentence bio + 1 sentence pitch. Make your bio as short as it gets: I am a Engineering student from Melbourne working on an idea (your 1 sentence pitch) Add a link to your product or attachment with quality wireframes. Calacanis notes, “nobody cares about your ideas, for the love of god, show that you are a builder”
- Sentence 4: I would love to meet you anytime, anywhere, for 15 minutes if you are interested in what I am doing.
In case you were lucky and got a meeting, the next step is to have your full pitch ready. The following structure is something you should be able to talk about in a convincing and compelling way.
It’s not a script to memorize but rather a set of guidelines to follow. If you need some graphics, such as financials, growth charts or market data you can put it in a deck form. Here’s the pitch:
- Hook: Investors are pitched to every day. Listening to founders pitching them is practically a routine for many. The hook is something that grabs their attention and makes them listen to what you have to say. It might be an interesting industry fact, a market shift or something else that’s big enough to get attention. Advice: just avoid cliches about trillion dollar markets.
- Problem: Problem is what makes customers pay. Investors understand this. The bigger the customer pain the higher the chances of success. Make them feel the pain, explain the implications, provide examples.
- Unique Value (Secret Sauce): If the problem is worthy of solving the chances are that many solutions already exist in the market. Demonstrate how your solution differs from others in a meaningful and more efficient way.
- Market: Many investors believe market is the key criteria to startup success. Show them the market is big and growing. Make sure to provide a top down analysis. That means you have a specific subset of the market you’re targeting right now, instead of e.g 10% of men in USA.
- Traction: When it comes to fundraising, traction is king. If you have a traction, show it. If you don’t use anything you’ve got to convince investors that things are moving forward at a pace. You want to leave an impression of a train that’s about to depart with or without them.
- Team: Investors invest in people. Most investors believe ideas alone are worthless. It’s the people that execute ideas and those people have to be great. Make sure you demonstrate you and your team are doers not thinkers. Show anything you’ve done in past that proves your ability to get thing done.
- Close: Remember the ABC rule. Always Be Closing. Ask for the next step, the business card, the next meeting or the time for a follow up call. Manage your pipeline and keep the momentum going. Never leave a meeting without having the next point of contact agreed.
Perfecting Your Game
Like with everything in life the chances are you’ll suck at pitching and talking to investors at first – if you haven’t done anything like it before. Make sure you constantly improve and always, ALWAYS ask for a feedback. Use the feedback to improve. However, to make sure you start at the right foot focus on the following:
- Clarity: Avoid jargon and technical terms at all times. Convey your ideas as clearly as you possibly can.
- Simplicity: Imagine talking to a 5 year old. Investors invest in things they find easy to understand. Don’t expect them to be experts in your domain, because they probably aren’t.
- Passion: Always deliver your pitch with passion. Passion is infectious and convincing. Just be passionate at all times. Even if you are a calm and reserved person learn to demonstrate passion.
- Practice: Practice makes perfect. Practice with friends, record yourself, pitch yourself in the mirror. The other side of the coin is that after you’ve pitched a lot of investors you will start to sound monotone. To avoid that, practice the delivery not the content.
By Michael Ugor