As a repeat founder and CEO, I know firsthand how exciting it is to secure meetings with investors. The meetings feel like a validation of your idea, your product and your market. They seem like proof that your fundraising efforts will be rapid and easy. If only things were so simple.
I mentor early stage startups and hear the following all too often from founders: “Really big investors and funds are interested. We have tons of meetings set up with prospective investors.” In a flurry of excitement, founders schedule meetings with these investors. They tell me that the investors love what they’re doing, and then they’re introduced to other potential sources of funding. But months later, they’re still taking meetings without any money on the horizon.
A cold reality many founders learn only after burning precious time and energy on far too many of these meetings is that most any investor will meet with you. But almost no one will write you a check.
Your job as a founder is to rapidly narrow that gap. As an early stage founder, time and energy are scarcer than money. You will waste too many cycles by meeting with every investor who agrees to talk. As a result, you have to rapidly qualify the people who will actually invest. You have to get laser-focused on fundraising strategies that will actually result in money.
This article will help you understand the following:
- It’s easy to get many meetings with investors that won’t result in money.
- Why investors are willing to meet with companies they don’t plan to invest in.
- Five tips to maximize your time and qualify investors.
- Four essential truths about raising money.
Investors Love to Meet With Founders
Investors meet with a large variety of early stage companies even if they have no intention of investing. They do so for many reasons. Whether they’re angel investors or established venture funds, they need to keep their finger on the pulse of innovation. They’re genuinely curious about what you’re doing even though you don’t fit their investment profile. They do favors for friends who ask them to meet with you. They have a mandate to meet with a minimum number of companies each quarter. They do competitive analysis for companies they’ve already invested in. None of these reasons mean they’re prepared to write your company a check, however.
Even if these investors were truly interested in giving you money, many times they simply can’t. They may be raising money for their own fund. Any available money could be earmarked for follow-on investments for their current portfolio companies. They may also have strict agreements with their own investors to only invest in certain types of companies. Despite these limitations, they will still meet with you for the reasons I explained above.
When I was raising money for one of my startups, I met several times with what seemed like a promising fund. The partners met with entrepreneurs all over the state. Two full years later, they made a big splash in the press and announced that they had closed their first fund. They were only now ready to start making investments. I was shocked — and then frustrated — to learn that they would have been unable to invest in my company when we met. I didn’t understand then why they would have wasted my time and theirs. With the benefit of experience and hindsight, however, I now understand their motivations. They were scoping the market and building their network. They were generating advance press for their fund, which focused on underserved founders. Their two years of advance meetings weren’t for the benefit of founders. It was for their own benefit.
Of course, not every meeting that fails to deliver investment is a waste of time. I also met with investors who weren’t yet ready to put money into my company because we were too early for their investment profile. One venture fund partner took a sincere interest in the company and genuinely wanted to help us grow and succeed. He met with me regularly to craft our message, identify target customer markets, review our financials and help us position ourselves for a future round with his fund. He nurtured us as a company. He wanted to bring us to his fund when we were at the right stage. He was extremely helpful, and working with him was a good use of my time.
By contrast, investors from other late-stage investment funds also reached out regularly. They wanted to check in and get updates on the company. I knew they had no interest in investing in future rounds, as they had direct competitors in their portfolio. I politely turned down those requests to protect my time and energy. As a founder, you need to know when a meeting won’t have any benefits for you, and you should be prepared to turn those down.
5 Tips to Maximize Your Time When Raising Early Capital
So, how do you tell the difference between a meeting you should take and one you should skip? When I coach founders, they’re surprised to learn that the exciting calendar full of investor meetings isn’t actually a pipeline of opportunities to raise money. They ask if they should turn down all investor meetings and only meet with family and friends in the early stages to focus on raising money. My answer is no. Some of these meetings might make sense. Protect your time and think strategically. Think and act like a big, successful company if that’s what you plan to grow your company into.
Here are my five top tips for founders to maximize their sacred time when raising early capital.
1. Assess Your Network
Meeting with prospective investors is a good way to expand your network. When you are introduced to an investor, assess the strategic value. How many connections do you have for your later-stage funding needs? If that is a gap in your network, schedule a few meetings. Create a foothold and nurture some relationships for future rounds. Be strategic about this approach, though. Look at their portfolios. How likely are the companies in their existing portfolios to be your direct competitors? If they’re close to your niche, don’t waste your time. Not only are they unlikely to invest in a competitor, but they’ll also probably use the meeting to learn insights that they can share with their existing investments. Instead, look for possible synergistic investors. Target those who understand your space and have invested in companies you could partner with or add value to.
2. Qualify Ruthlessly
Beware of buzzwords and opaque promises on investor websites. Many investors claim to invest in “early stage, seed or pre-revenue” companies. Ask them to explain exactly what that means to them. You might think pre-revenue means something like “before a company is realizing revenue from customers,” but this term is not always used in such a clear-cut way. I met with an investor whose website claimed they invested in pre-revenue companies. After we had a long meeting, he explained that his fund’s definition of pre-revenue required companies to have $1,000,000 in signed customer purchase orders that could not be delivered without the funding. My board of directors was leery of pursuing purchase orders until we had enough funding to deliver them. Qualify so you don’t waste your time or theirs.
3. Ask Directly
Presumptions cost you time and energy. Don’t be afraid to ask precise, direct questions. This is how you qualify. Do you invest in companies at our stage? How much annual recurring revenue (ARR) do you require for an investment? When did you last invest in a company with our profile? How much did you invest? How much did you earmark for a follow-on investment? What were the requirements for that follow-on? What did the deal look like? Are you actively investing today?
4. Go Lateral
If the investor isn’t a good match for you, be equally direct and go lateral. Ask for introductions to people in their network who are actively investing in companies just like yours. The key is actively investing. You don’t have time to meet with investors who are currently raising their own funds. You don’t have time to meet with family offices who are transitioning control between generations. Protect your limited resources: your time, energy and financial runway.
5. Forward Qualify
If you’re too early for the investor today but feel they could add value in the future, ask them to be specific about their investment thesis. What milestones would you need to hit to secure funding in the future? Do they have definite metrics in relation to revenue, customer traction, product maturity? If they won’t provide specifics, you’ve qualified them out and saved yourself precious time.
4 Truths Every Founder Needs to Know
Raising money is grueling. The faster you qualify and learn to be direct, the sooner you can get back to the real work of growing your company. Here are four key truths you need to learn and internalize.
Truth 1: Your product and company may be amazing, and the investor may love what you’re doing. But if you don’t fit their profile, it’s not a match. The chances of convincing them to change their investment thesis and write a check are vanishingly small. Investors have a formula, framework and risk tolerance. They also have stakeholders they report to. They have to move mountains to deviate from their rules. That’s why you need to qualify early and move on.
Truth 2: Be as selective about your time as investors are with their money. Your time is a sacred resource you can’t replenish. It’s exciting to have your idea and company seemingly validated by many meetings. But meeting with people who don’t write checks won’t result in funding. Qualify and move on.
Truth 3: It is your responsibility to get your company funded. Meet with a cross-section of advisors, mentors and investors. Then narrow down, qualify precisely and get serious about raising from actual, reasonable prospects. Otherwise, you’re an ideator, not a founder.
Truth 4: Once you identify realistic investors, vet them as much as they vet you. Too many founders are so excited and grateful for the meeting that they don’t qualify or ask realistic questions. What would these people be like to work with culturally and interpersonally? Not all money is created equal, and you don’t want all the money that is available to you. If it’s not a good fit, don’t take the money.
You need to expand your network strategically. Set up a few meetings with investors who are not likely to invest immediately if you believe they will be helpful for future funding rounds. Then get laser-focused and qualify, qualify, qualify! Don’t be afraid to ask directly. Make sure investors are actively investing in companies at your current stage. If they aren’t, ask specifically for introductions to people or funds who are. Your urgent task is to capitalize your company. If you don’t, you won’t have a company to raise future rounds for.