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Chapter 7: The Fundraising process: How to reach out to investors
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You've spent a significant amount of time preparing your investment materials (i.e., investor deck, pitch deck, financial and valuation models), and it's finally time to distribute them to investors. You'll need to know how to find the right investors and make the right impression.
In this blog post, we'll go over the best strategy for attracting the attention of investors.
Ideally, you'll begin by identifying potential investors and then reaching out to them with a brief introduction to your company. You will then send them more detailed information and meet with them to present your company. However, approaching investors is not always this simple, and it can be a complex process with many nuances.
It is critical at this stage of the process to put yourself in the shoes of the investor. Investors are reviewing hundreds of investment opportunities, and it’s vital that you make the best first impression possible. The figure below depicts the investment funnel for investors, and illustrates how competitive the reach out phase can be.
Figure 1: VC investment funnel for companies
Identifying your ideal investor
The qualities of each venture capital fund are different, and it’s time-consuming to compile a long list of potential investors. You will need to do a lot of research and screen many investor profiles in order to identify your ideal investor. We suggest using the following criteria to first discover potential investors:
- Target industry sector
- Stage of development
- Range of amounts invested (ticket size)
- Geographic area
Once you've compiled a long list of investors, you'll want to focus on those who are most likely to invest in your startup. To determine which investors will fit into this category, we recommend filtering your long list with the following additional criteria:
- Knowledge of your industry
- Solid track record of successful VC investments in your sector
- Strong network and well connected to relevant stakeholders (potential partners, etc.)
- Engaging, collaborative, and willing to invest time, money and skills
PwC Pro Tip
- It is critical that you reach out to investors whose investment mandates align with your company. This not only saves you a lot of time, but it also provides you with the best opportunity to receive the most added value alongside investment in your company.
How to get a meeting
Cold outreach to investors may appear bold and ambitious, but it tends to yield limited results. Having warm introductions to investors from your personal network and via reputable and credible advisors (like PwC) is more effective. In addition to referrals, meeting investors in person at events and conferences can be beneficial. A successful fundraising process will necessitate a combination of these methods in order to connect with the right investor for you.
Figure 2: Ways of connecting with investors
PwC Pro Tip
- Divide and conquer! Make use of your team by assigning dedicated team members to speak with investors at events and conferences. When your team is spread out during a conference, you have a better chance of speaking with more investors than if the CEO is the only person networking.
How to create visibility / awareness
Making sure you're on the radar of the investors you're interested in is part of the reaching out process. We have identified five activities that can assist you in increasing your visibility.
Investors are constantly looking for new opportunities on a variety of database platforms (e.g. Crunchbase, Pitchbook, etc). If you are a later stage company (Series A and above), you are likely already listed in these databases. It is critical that you double-check and ensure that those databases contain accurate information about your company. If you are a pre-seed or seed stage company, it is vital that you register your company on these platforms and associate it with the appropriate tags.
Creating content around a client case study, particularly if it is a well-known client in your industry, is an excellent way to promote your company. This demonstrates that someone is willing to pay for your solution.
This can be done through the traditional channels, such as the press, or through more modern channels such as social media.
Showcasing your team's subject matter expertise through report publications, interviews, video clips, and so on is also a great way to demonstrate to investors that you have the ability to execute.
Warm introductions, as previously stated, are more effective in obtaining meetings with investors, and investors rely on accelerators/incubators for deal sourcing. Investors frequently attend activities and events organised by accelerators/incubators, and they are more likely to get to know you if you have gone through the accelerator process.
PwC Pro Tip
- Keep your profile on company databases up- to- date so that investors have all the information they need when looking for investment opportunities.
- If part of your strategy is to meet investors at events, practice your elevator pitch (i.e., a 30-second to 1-minute introduction about your company). Practising your pitch with team members is an excellent way to ensure that you convey the correct message.
Reaching out, what does it look like?
Figure 3: An in-depth look into the reach out phase
Once you have piqued the VC's interest, meeting(s) will follow because the VC will want to learn more about you and your company.
First meeting - This meeting is really about getting to know each other and determining whether or not the conversation should be continued. You and the VC will be evaluating each other in a variety of ways. There are no hard and fast rules when it comes to settings and documentation, but most of the time, the investor will have reviewed your investor deck (or pitch deck) but not your business plan before the first meeting. You should present your value proposition, enthusiasm, and future vision.
Second (and follow-up) meetings - This meeting will be more formal and focused on facts and figures, but storyline, vision, and emotional intelligence will remain important. The investor will almost certainly have read your business plan prior to the meeting, so be prepared to answer detailed questions.
PwC Pro Tip
- During the first meeting and follow up meetings, the investor will ask themselves questions such as: ‘does Startup X have the best solution to solve this problem?’ ,‘what is my impression of the team?’, ‘how passionate are they about their solution?’
- It is critical that you do not lie about facts, as this may jeopardise the investor's trust in you. It is important to understand that investors will conduct due diligence to ensure that all of your information is correct.
- If an investor makes a request for a document or sends an email, make sure you respond within 24 hours.
- While the NDA (non-disclosure agreement) is a useful tool in a variety of situations, it should be used with caution during the fundraising process. Most VCs are reluctant to sign NDAs because they would require a large legal team to review those documents, and they typically back an idea rather than something of real value worth protecting. It is acceptable to have an NDA if you are in a highly R&D focused industry (e.g. biotech), if you are pitching your idea to a CVC, or if the investor already has a stake in the same industry.
- If you want to protect the information you share with investors, we recommend using a reputable virtual data room provider, where you will share the most confidential information at a later stage.
- Create a document to collect investor questions and feedback. This will allow you to anticipate those questions when you meet with another investor in the future.
It is important to note that you should always be talking to investors not only when you need to raise funds. Building a relationship with investors over a period of time makes it easier for you to reach out to them.
If the reaching out phase is successful with investors showing concrete interests in your company, you will need to enter the next phase of the fundraising process which is negotiation. In the next blog post, we will dive deep into the negotiating phase and we will be discussing term sheets.
For more information on how PwC can support you in your fundraising, and how we support startups and scaleups visit our website.
Download the full PwC's fundraising whitepepaper here
Preparation phase
Startup valuation
Negotiation phase
Term sheets
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International Tax Partner, Platforms and Market Positioning Lead, PwC Belgium
Tel: +32 476 87 52 24
