The relationship between investors and entrepreneurs is sometimes an odd one. Many are the stories of entrepreneurs who approach investors looking to raise money for a round they wanted to close yesterday.
On both sides of the table, it often feels like relationship-building is a secondary objective. Prodded by the culture of investment, and likely by pop culture references like Shark Tank, entrepreneurs have been conditioned to approach investors only when they are ready to raise money. But, it can feel a bit like speed dating when you have a matter of weeks to convince an investor to put their money behind you and your team.
And while fundraising (or even thinking about fundraising) is enough to induce nausea in even the most seasoned entrepreneurs, startup founders who think long-term about their funding will likely find themselves in a better place when they need to pass around the hat.
Think about it: are you more likely to get funding from a stranger you met last week or someone you've built a relationship with over a year, someone who has seen growth from an idea to an actual company? Entrepreneurs likely shy away from this approach because they feel that investors don't want that much contact, but the right ones should and do.
How do you open the door through that first interaction? A simple email will suffice, something along the lines of:
I'm the founder of Company X, which is in a space in which you seem to have a lot of experience investing. We aren't raising money right now, but will be in the future. Given the companies you've talked with, I'd love to get your perspective on what we're doing.
You'd be surprised at how many investors will appreciate being engaged in this way. Typically, these meetings will be structured more as a conversation than a pitch. If you have a deck together already, you can send it along in advance. Otherwise, put together a 1-page executive summary about the company and team background, so that the investor has time to prepare. In the meeting, focus on where the company is now, what challenges you face, and what your fundraising plans will be. Come prepared to ask questions as well. You want to engage the investor in a dialogue and glean whatever insight you can from this first interaction. Unless the investor is uber-engaged, try to keep this first meeting to 30-45 minutes.
After that initial meeting, you can follow-up with a simple ask:
Do you mind if I send you occasional updates about the company?
Many will say yes, but be aware of how often you communicate. Updates once every 4-6 weeks or even every quarter are appropriate. Any more than that and you risk abusing the door you've just opened. You could also consider asking for follow-up meetings every 3-4 months if you have something of substance to report.
Ideally, this process will begin a year before you even have to consider raising money. That way you'll have 12-18 months of time to get to know a group of 3-5 investors. And, when it's time to fundraise, they'll not only be warm leads, but they'll be knowledgeable enough about the company to potentially bring others into the round.