Topic: Why cold pitching to investors is not a great idea
Most start-ups needs funding and so raising money from an investor is a very challenging job. It requires an amazing pitch deck to make your dream come true! In our previous blog titled ‘Smart Funding for your business’ we have written about the dos and don’ts of pitch decks. In this blog however, we don’t want to talk about pitch decks. We would talk about another important feature of fund raising i.e. the people to whom you would be presenting the pitch decks – THE INVESTORS or VENTURE CAPITALISTS as we fondly call them.
One of the toughest part of getting funded is finding the right investor. In the process of finding the right investor an entrepreneur might have to talk to dozens and dozens of investors. Your investor is as important and instrumental in your success as is your ‘BIG’ idea or pitch. Your investor and you have to be on the same page, both being able to work on the same field and supports the vision and goal you have envisioned for the company. This entire task of getting the right partner is a herculean task and requires a lot of research, perseverance, diligence and of course a well-crafted pitch.
Draw an ideal list of investors and choose them carefully. Be thoughtful in approaching investors. Getting funded by VC is not easy but it is possible if your approach is correct and if you are a good match with his interests. Instead of cold calling reach out to friends, relatives and ex-colleagues and ask for introductions/recommendations to investors who would resonate with your business plan. The point I am trying to make is investors are flooded with enquiries and one way to stand on is to get highlighted and validated by someone they know and can trust. Step back and be extremely smart about the path to investors. This is the beginning of a very important journey.
UNDERSTANDING INVESTOR TYPES:
Every entrepreneur should understand that all investors are not alike. If you go to an individual investor website you will get to know the investor’s portfolio, stages and sizes of investments as well as their industry focus and location. Most Angel Investors and VCs will fund seeds and start up projects. Some investors may focus on later stage projects where they want to pump in more money. Therefore, before approaching an investor it is important to understand the stage and size of investment. Investors may also choose to focus based on geography and industry segments. Eg. Technology might excite some while others might choose software or telecommunications sector.
Entrepreneurs always feel that their idea is the best and want to execute quickly. A more thoughtful measured approach will increase your chances of success.
Parallels can be drawn between marriage and investment partnerships. Except this that you can’t easily get a divorce. So let’s keep these 5 fundamental things in mind before choosing your Angel investor:
1. Look for choosing your partner and not someone who will just give you money. People are differentiable money is not. You need to look at the person with whom you can have a significant partnership. Do you have mutual respect and a strong connection? You should ask yourself the proverbial island test: if you are stranded in that island with that person will you be happy or sad?
2. Add Value: Try looking for investors who can add value to your business and fill in the gaps then only providing funds. Enterpreneurs and VCs have a successful partnership only when the latter contribute to the growth of the former and when it is not merely transactional.
3. How much real time will the investor have for you? It is imperative to know that the investor joining hands with you have enough time and commitment towards your business. How many other boards is he on and what will be the frequency of communication. Also important: Do the investors control the volume dial or can you turn it up when needed.
4. The investor knows what to do and prioritizes: I believe that the investor has 3 most important missions when they steer towards funding a company.
a. Ensure that the strategy is correct
b. The company has the best team to execute this strategy.
c. Company will have enough funds to implement that strategy.
All other operations, resource management and other added value is also important but they come after these 3 missions. If these missions are not clear, reviewed, aligned or prioritized the other values will have no significance. But there are investors who overlooks these missions and are not capable of prioritizing it right. Having your investor with pure and only financial clout and experience might not be helpful.
5. The right VC is a doorway to new investor: This leads us to the final point of choosing a VC: to create pathways for future investors who sees your small start-up even more worthwhile because of the connections you have. The right VC can bring in a lot of credibility to your business. Hence, it is not only significant for cash infusion but also for the better future of your start up.
So, it’s safe to say that don’t hesitate to reference check potential VCs. As an entrepreneur it is as important to you to choose the right investor as it for an investor to choose the right business to fund.
A lot of people will tell you that cold pitching is not the best way of getting to a VC. The best way to engage with VC is by getting a warm introduction within someone from your network. An introduction from an existing known company is a strong signal for a VC. Your known contact will also tell you the quality of the investor. VCs receive 1000s of email on a daily basis. They only reply to a few emails of people they already know. They don’t open emails from people they don’t know. The investor wont trust you if he doesn’t know much about you. The category of the person who will introduce you to the VC is not so as important as the nature of his relationship with the investor. The best introduction is through people with good personal equation with the investor. To make an introduction with the investor there are a few steps which you can keep in mind:
1. Make a list of VCs / Investors you would like to be introduced.
2. Go to linked in, read about the background of the investor. Is he the right partner you are looking for? Check your shared connections. This is the starting point. Then you can look at the shared connection and judge the nature of the relationship with the VC.
3. Selecting the right shared connection, now approach them individually to get yourself introduced.
In this way you can get a warm introduction to the VC. If you fail to establish any common contact between you and the VC then you have to look for other ways/platform where you can approach VCs.
1. Pitching Events: Make sure you turn up at major pitching events for networking. Get introduced to investors and make the right connections
2. Crowd funding sites: Crowd funding sites will give you access to different types of investors – from general public to philanthropist to known investors seeking to fund new ideas.
3. Online lending platforms: You can go for online lending platforms like peer to peer, nontraditional lending sources or even large investors looking to fund small businesses.
4. Accelerators: Mostly for beta stage startups, premium accelerator programs offer introductory mentor relationships that provide entrepreneurs the time to develop investor connections and demonstrate their potential before funding.
If nothing works for you cold pitching should be the last resort to reach out to investors. If you do a cold-call pitch to a Venture Capital (VC) investor using email, your proposal is already at the bottom of the pile. Your real funding request can also be classified as spam. However if you do cold pitching please find the list of 10 things which you should avoid and VCs absolutely hate:
1. Lengthy emails/pitches: VCs receive a lot of pitches and hence you should keep it as short as possible
2. Lack of numbers: Numbers are crucial for any fund raising activity and should always be reflected in your email pitch.
3. Too many attached files: For your pitch email avoid attaching unnecessary files and send only your pitch deck.
4. Don’t mention NDA: Mentioning NDA might rub the investor in the wrong way in the first place.
5. Spelling and Grammatical errors: Avoid any spelling and grammatical errors in your pitch email.
6. Pitch through social networking site: Many VCs are influencers and thought leaders on social media sites. Never sent your pitch through networking sites like Linked, twitter etc. as it is unprofessional and unacceptable.
It requires a lot of skill to write a cold email effectively. Most people have no clue how to format an email to get a response. If you can learn how to write a great cold email, you’ve put yourself far ahead of the competition. For start-ups, emails are a powerful tool that can help get funding. Creativity and persistence are the key elements of cold pitching. Every email has to be individualistic and personal and have to stand out on its own. Try to anticipate the questions the investor might have in mind and incorporate the answers briefly in your email. You don’t have to shout from the rooftops how special you are and how brilliant your idea is! You just need to be relaxed, professional and unique.
Money should not be your sole aim while cold pitching. That’s not going to happen, at least not through one email. The aim is to make an impression and feel like that you have thoroughly done your homework in choosing them and not randomly looked for funding. Most importantly they should be excited about your business idea. Here are a few tips on cold-emailing investors: