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Washington DC Autumn 2013
Sessions: 2013-11-19 - 2014-03-04
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How Best to Approach VCs or Angel Investors, by George Deeb
Founder Insight gives you feedback from the startup trenches.
In this post from his blog, George Deeb, Managing Partner at Red Rocket Ventures and Chicago Founder Institute mentor, offers a detailed guide to approaching potential investors. From having the proper referrals to writing the perfect email, Founders best be prepared before making a first impression.
Lesson #10: How Best to Approach VC's or Angel Investors
Below, How Best to Approach VC's or Angel Investors has been republished;
"I can't tell you how many entrepreneurs first approach investors, either at the wrong time, in the wrong way or in the wrong format. Today, we will tackle these simple to fix pitfalls.
Firstly, what do I mean by wrong time. It is important you have all the required elements in place before approaching investors. This includes completing all the necessary research supporting your business plan (see Lesson #7 on how to write a business plan). And, if possible, it is preferred to have some type of "proof of concept" behind you. This could include a working prototype, closed customer contracts, brand name pipeline, growing traffic to the site, proven team in place, etc. Anything that gets the investor comfortable that heavy lifting research is behind you, there is some initial traction for the product and a solid team is ready to begin execution of the plan. If you don't have these pieces of the puzzle firmly in place, wait before approaching any professional investors.
Secondly, the proper way to approach an investor is typically through a referral. The investor is much more likely to hear your pitch (among the 200 they listen to each year), if it is being sent to them via somebody they already know and trust, that can vouch for you. So, use LinkedIn looking for mutual connections that can open that door for you, if possible. Or, asking your lawyer or accountant for intros. If there are no mutual connections, you have no choice but to cold call the investor, your lowest odds of probability to getting a deal done. But, if that is your only option, it is important you come across and professional, smart, enthusiastic and well-polished in both your information and your delivery.
As for the desired format, I typically find that investors are very busy, and are more receptive to getting an introduction via email (which you can access via their website or calling their office). Email gives them a chance to research you and your idea, before committing to a phone call or an in person meeting. So, make sure you keep a clean social networking trail on Facebook and Twitter, as they will most certainly be Googling you. And, make sure your LinkedIn profile is complete and compelling, as it is your online resume.
The contents of that email are the most critical. Remember the short attention span of investors: if they can't understand your business in 30 seconds of reading, they are moving on to the next one. So, you need a very short and sweetly written cover letter that summarizes your story in a few sentences (not paragraphs!). Something that gets them jazzed up.
For example, iExplore's email could have read: "iExplore is the #1 ranked website in the rapidly growing $10BN adventure travel industry with over 1MM visitors per month and a strategic partnership with National Geographic. Our revenues are growing 50% per year and we are raising venture capital which should yield you a 10x return. See attached for more details in our executive summary. Let me know a good time for an introductory call or meeting to discuss further. How do you look on Friday morning?" That's all you really need, including a clickable link to your website so they can easily learn about your product in more detail (so make sure you have a snazzy website, to back up your snazzy pitch).
Notice what that paragraph did: (i) described the business and its leading market position; (ii) detailed industry size and growth; (iii) highlighted a brand name strategic partner; (iv) showed the business was driving revenues, and how quickly they were scaling; (v) and wet their beak with the opportunity to make a big 10x return. That was a lot to accomplish in two sentences. The paragraph also closes (as it always should) with a clear call to action, which will be very easy for the investor to hit reply and say "Friday looks fine at 9am".
Now that the cover letter is solid, follow the above linked Lesson #7 to prepare a 1-2 page executive summary information (with the best of the best from the bigger business plan, include management bios and five year forecast). That is it. Do not send them any more than this, as they will not read it at this time. They will certainly ask for much more information during the due diligence process, which you will already have prepared with your full plan sitting in reserve. And, worth mentioning again, graphics and charts, go a lot further than text to getting your message across as quickly and effectively as you can.
You only have one chance to make a good first impression with a prospective investor. Don't blow it!"