A lot of my work as a consultant involves helping founders come up with a good fundraising story, but a surprising number of founders seem to get stuck on the next step: Finding the right investors and landing a meeting to pitch their companies.
That’s a problem. It’s no good reading nearly 50 pitch deck teardowns and crafting the perfect pitch if you don’t have anyone to present it to.
So here it is: A sure-fire way to get in front of the right investors, at the right time.
In this article, I will cover:
How you can identify your strike zone (what you are actually looking for in an investor); and
How to identify investors that invest in your space, stage, and geography.
How to identify your strike zone
Investors use an investment thesis to identify what they should invest in. In an ideal world, you won’t waste time meeting investors whose thesis you don’t qualify for.
To figure out if you fit someone’s investment thesis, you need to have a firm grasp on what you do as a company.
Where are you located?
Some investors limit their activities to a specific region: Some might invest only in Silicon Valley, others may focus only on Germany, and some accelerators will be based in a specific region or city. Do your research and leverage your location as best you can.
Of course, an increasing number of companies are going fully remote, which makes it harder to argue that you have a local affinity. However, if 70% of your team is based in Europe, but the CEO is in San Francisco and the company is a Delaware C-corp, don’t make the mistake of describing yourself as a European startup.
Do you have school affinities or any other ‘special sauce’?
Some investors may invest predominantly in certain niches: women, people of color, or founders who went to MIT, Stanford, Harvard or the like.
In fact, most universities have investment clubs or connections with investors who have a particular affinity with higher learning institutions.
Which industry are you in?
Are you in finance, healthcare, consumer hardware or climate tech? Some investors specialize in specific industries that others will avoid at all costs.
I’ve seen people make the mistake of describing a finance play as a healthcare startup because there is an indirect link to health. Gofundme, for example, is often used to fund medical expenses but it’s a crowdfunding or financial tech platform. If its founders had used the medical angle to tell the company’s story, some investors might have had a problem.
What’s your business model?
Are you a direct-to-consumer consumer packaged goods company like Native or Blueland, or are you a SaaS company like Growfin or Primo? Are you a business-to-consumer (B2C) company? Do you run a marketplace model like Sourceful or MBP? Or do you have a more exotic business model such as Ampersand, which serves SaaS companies specifically (B2SaaS, perhaps?)
It’s important to understand the dynamics of your market because investors will want to know. Many investors focus only on certain business models and may not entertain you if you don’t fit that definition. For example, some only invest in marketplaces while others will run for the hills as soon as you say “marketplace.”
It’s crucial to be clear about what applies to you.
Which stage are you in?
I had a really interesting conversation with a founder who was raising a $3 million Series A. They figured it was a Series A because they had already raised an angel round and a very small institutional round, but it transpired that the company wasn’t ready to scale yet.
Naming rounds is pretty useless, honestly, but here’s a rough guide:
A Pre-seed round is typically the first money invested in a company that is typically busy building a product and doesn’t have any revenue yet. Amounts at this stage vary between $200,000 and $3 million, depending on the complexity of the problem you are solving.
A Seed round is usually raised when your product is beginning to materialize. A startup at this stage may have some customers and some revenue, but wouldn’t have cracked the product-market fit or have a repeatable business model. Amounts raised at this stage typically range from $1 million to $15 million.
A Series A round is usually raised when a startup begins to see significant traction and its founders need money to drive further growth. A very small Series A round could be around the same size as a Seed round (about $1 million), but they’re usually $10 million and up.
How much are you raising?
You’ve probably figured out that the name of the round doesn’t directly correlate with the amount of money raised. That said, with a clear ask and a tight operating plan, you can probably get a decent idea of how much you should raise. That’s another data point you need to be clear about before you’re ready to raise money.
In the rest of this article, we will map the information gathered above to investors and explain how you can use it to create a list of the perfect investors for you.