Targeting The Right Investor

The equity fundraising process can be extremely time-consuming in part because there are so many different sources of equity financing. Including but not limited to high net worth individuals, traditional venture capital firms, and large international banking institutions, potential investors number well into the thousands.

While you want to be aggressive and expansive in your search for a financial backer, you can save valuable resources and time by focusing your efforts only on those investors who are most likely to fund your company. In illustration, many large venture capital firms have preferred minimum investment levels. If you're seeking to raise only $500,000 for your business, then your time would be better spent on smaller investment firms and angels.

In addition, when you are contacting and meeting potential investors, your company will be more warmly received if you come across as well-informed about their background and investment interests, and the targeting process can help educate you in this regard.
How do I find potential investors?
There are a number of ways to find potential investors. Business contacts including service providers, clients, vendors, industry connections, former colleagues, friends, and family are all potential leads to investors. In addition, there are a number of resources, organizations, and associations that maintain lists and profiles of all types of investors. Finally, the Internet is another way to find investors. Many venture capital firms and investment clubs maintain a web presence.
During this process, it is also helpful to gather information on these entities. Using personal connections, the Internet, various databases, and news and business wire engines, research a potential investor's profile including such factors as the following:

Basic Information

  • Is the entity actively investing?
  • Location
  • Organizational structure
  • Amount and source of assets under management
    (i.e., the total amount of money the entity has to invest)
  • Preferred method of contact
Investment Preferences
  • Region
  • Industry
  • Stage
  • Investment amount
Other Information
  • Relevant news
  • General market/industry reputation
  • Prior investments and portfolio companies
  • Bios of key investment principals
Visit Equity Capital Market Fundamentals for more information about researching potential investors.
Which potential investors should I target?

The process of targeting investors is subjective, but there are a few general rules of thumb that you can follow:

  • Concentrate on entities that are actively investing.
  • Focus on potential investors whose investment preferences match the characteristics of your company and your funding requirements.
  • Prioritize those individuals and/or firms that can add value other than capital. For example, a venture firm that has contacts to major clients that you hope to land would be terrific match for your company.
  • Potential investors with offices in your region may be more inclined than ones based farther away to invest in your company.
How should I contact potential investors?

While most venture capital firms allow you to submit executive summaries anonymously, or cold, through the Internet, via email, fax, or regular mail, you are more likely to get a positive response if you are personally introduced to a firm or investor by a mutual contact. That is, an investment professional is much more likely to review an executive summary and business plan that are sent to him/her by a business contact than materials that are sent to him/her from a stranger. Therefore, using your business contacts, try to identify a connection to the investor and contact him/her that way.

Also, active investors are always looking for new deals and often participate in and attend local networking events such as workshops, seminars, venture forums, and expos. During the fundraising process, be opportunistic and do the same—more than likely, you'll meet both investors and other contacts that will be helpful as you raise capital.

 

Kaltura

How to Select Investors To Target (5:29)

Investor Darryl Wash discusses how to select investors to target.