When should you start engaging with investors? Yesterday.
Updated: Apr 24
If you’re raising capital in six months from now, that means you start now. Not in six months.
Start early. Always.
It’s always easier said than done, and founders know this. Most people don’t want to spend resources completing a particular task, until they have to. The same goes for fundraising. The typical entrepreneur usually starts engaging with investors only on the day she’s ready to raise capital or “be in market”. This is a classic misstep, but understandable given the simplicity of the logic. People generally do things when they need to and don’t when they don’t need to. Why waste time, resources and (potentially) money, when there are ten other tasks more pressing that require your finite amount of resources? When it comes to fundraising, unfortunately this logic doesn’t work. In fact, it backfires. More on why below, but let’s first start with the concept of relationship building.
It’s about who you know, as well as what you know.
Relationships matter. This is applicable to many life situations, both personal and professional. Let’s look at job recruitment as a use case. Imagine that a hiring manager is deciding between two candidates. Both of them are equally qualified in almost every manner in terms of educational pedigree, relevant industry experience, and job performance. One of them attained the interview through a cold application submission while the other one had started the job search several months earlier. In that time, the second candidate met with several members of her prospective team for coffee to get acquainted with company culture and pick their brain about the opportunity. Who do you think got the job offer? This isn’t a trick question, it’s the obvious answer — Candidate 2. Same thing goes for capital raising.
Knowledge Transfer = Positive Association
There are thousands of startups out there, and the typical VC firm reviews at least five hundred to a thousand pitch decks a year. Right off the bat, you’re going to need to be top-notch when it comes to vision, team, metrics, and presentation ability. However, often times that’s still not enough. With <1% of companies successfully getting an investment from a VC, you need every leg up possible. Build relationships with multiple investors at a few firms that you’ve identified are the perfect fit. Have those very same investors coach you on what they’re looking for, and how it should be presented. Nail those conversations, and the team will keep you on their radar, and the investors you’ve met with may even present the deal internally.
Mentors will help you if you let them.
Part of the reason why mentors go out of their way to help mentees is subconscious. It’s been psychologically proven that people with unique skillsets and knowledge (expert VCs, in this case) garner immense satisfaction from helping and mentoring people by sharing their knowledge and experience (founders, in this case). This translates to a positive association. As a founder, imagine meeting with multiple people at the same VC you’ve been trying to get a lead in to, five times before you actually need the capital. You’ve already put in the work at that point, and your funding chances have just skyrocketed.
Write your story for them. VCs like the known, not the unknown.
Building relationships early gives you the opportunity to showcase your growth. Investors come across a lot of decks with impressive numbers but no context behind it. Great, you’re at $10K MRR. Have you stagnated that way for a year or were you at $5K last month and on pace for $15K next month? These contrasting examples paint very different pictures. By building a relationship early and consistently checking in, you will showcase your growth to the investor themselves, and write the story for them. Make their job easy by showing them why it’s a no-brainer. VCs especially, are rarely sold on a jazzy initial pitch. The companies that make it in to their portfolio have more often than not been on their radar for >1 year.
Over time, you’ll won’t come across as an unknown startup with a nice pitchdeck. Instead, you’ll be more like Surya from NeonVest, with a 50% MoM growth and a solid roadmap. The next time the investor looking to invest in your space, your face will appear top of mind. Mark Suster wrote an excellent article on this topic that we recommend you read — Invest in Lines, Not Dots.
Start early. Always.
In summary, start early. If you’re not ready yet and only seeking to raise six months from now — that means you start NOW, not in six months. Fundraising timelines are notoriously long and almost always take a lot longer than anyone wants or expects. If you have a goal in mind for when you want the round to be completed, your best bet is to start as early as possible so that you can build relationships, gain the trust of the investors, and paint a story on your growth.
NeonVest helps you with that. We’re a new age Expert Network, specializing in connecting founders to VCs. Not only do we grow your investor network and connect to relevant investors, we also give you the platform to speak to expert VCs about what they’re looking for, and how you can be better. That’s the Expert VC Network. Don’t underestimate the value of these insights, or the value of these connections. Take advantage of them. Sign up here.