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)
The process of targeting investors is somewhat 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.
How to Select Investors To Target (5:29)
Investor Darryl Wash discusses how to select investors to target.
