As I explain on the Fundraising Certificate, which is a 3 week comprehensive course where entrepreneurs learn everything related to fundraising, there are many drivers that motivate the decision of an investor to pull the trigger with an early stage investment.
However, there is one single thing that moves investors to get behind a company and that is trust. Without trust there is nothing. That is why investors, especially angels and Venture Capital firms, always state that they invest mainly in people and that everything else comes after this fact.
Some of the ways to build trust includes the following:
- Be reliable and do what you say
- Honor your promises
- Be consistent
- Be honest
- Be authentic
- Speak from the heart
- Don‘t omit important details
- Take responsibility
With this in mind, it is almost impossible to obtain an investment during the first meeting with an investor. It will take some time to build the relationship and get the individual to a point of comfort in which they truly believe that you can execute on your promises. This is what I call connecting the dots. You will meet with the investor first and at that point you will state how you want to get from point A to point Z. A few months later they would want to see where you are at and if you were able to deliver then they would get excited and invest.
Furthermore, to add on the subject about connecting the dots, the timeline of closing the capital in the bank looks more like the slide below which is taken from the Fundraising Certificate materials. Basically you want to start raising capital at least 6 months before you run out of cash. It will take you anywhere between 3 to 6 months to close an investor and at least connecting with 100 investors to have one of them come forward and invest in you.
In this regard, the first step of the process is receiving an introduction. Normally the best introductions come from a successful founder that has made that investor a ton of capital. Entrepreneurs love to pay it forward so schedule a meeting and tell that founder what you are up to. At the end of the meeting, or phone conversation, ask them for an introduction and for tips on how to approach that investor. Normally investors would have the logos of portfolio companies on their site. Avoid getting an intro from an investor that already passed on you. Other good intros could be from investors participating on your round or past rounds.
As shown on the slide above, the second phase will be to email an executive summary or your pitch deck to the investor (you can access my free pitch deck template below). This is once the introduction has been made. The investor will then take a look at what you are up to and decide wether or not you are a good fit with her investment thesis. If all the check boxes are covered then you will move to the next phase.
ACCESS FREE PITCH DECK TEMPLATE
ACCESS FREE PITCH DECK TEMPLATE
The next phase is to either meet in person or to have a phone conversation. Here is where the key factor of trust kicks in. Even though you don‘t pay much attention to it at this point you are starting to build the relationship with the investor. Don‘t try to put your pitch down their throats. Try to get to know them first, discuss some of the hobbies you have in common with them, ask about their family, etc. Once you get that background relatedness then move on to the conversation about your business.
After this initial meeting, you will need to ask for the next steps before leaving the meeting. The investor will let you know wether they need to take a look at some of your materials or discuss with some of her colleagues at an internal level. For the most part what would happen is that you will need to follow up. Put together a strategy for this and only follow up if you have something meaningful to share (e.g. product launches, media mention, introduction to someone else, etc). Follow ups should be every 2 weeks. This is very much like doing sales and having a pipeline.
Once the investor connects the dots with your follow ups and sees that you are delivering on your promises that trust is established and they will ask you to send them the offering documents in order to move forward and execute their investment. They will sign and wire the cash as the last step of the process.
With that being said, focus on relationship building and get to know the investor. Always over deliver on your promises and as a result you will have access to receiving their trust and their investment.