There is a saying you hear frequently in entrepreneurial circles: “You can chase sales, or you can chase investment.” Searching for investors, preparing materials, and due diligence are a significant time drain for busy CEOs. If you are getting ready to jump into a capital raising cycle, use these tips from a Launchpad2X workshop at Atlanta Tech Village led by Launchpad2X founder and investor Bernie Dixon and Brandon Shelton, managing partner of Task Force X Capital, a venture capital firm that specializes in early stage companies led by veterans. It will help you avoid wasted effort and increase your chances for success.
- Do your homework. Don’t waste time pitching to investors who only invest in a certain vertical. When you identify the right investors, find out more about them so that you can have a conversation that is not only about you, your company, and asking for money. Investors are not just evaluating your company. They are evaluating you and whether they want to do business with you.
- Get a warm introduction or connection. This makes it much more likely you will get a call or email in return as investors sift through sometimes a hundred or more pitches a week.
- Avoid the temptation of treating everyone the same. Cut and pasted emails that are clearly mass produced do not make a favorable first impression, especially if there are mistakes in them.
- Know how to tell the story of your company. Practice the conversation just like you would for a pitch with a deck.
- Prepare for common questions: — Know the size of your industry and the metrics of your company. Keep it simple in these first conversations. Describe where you are currently and be prepared to describe what your first actions will be with more capital and how you will reach your forecast based on logical/reachable assumptions. — Show that you know competitors in your industry—who they are and their growth trajectories. — Be able to say succinctly what your differentiators are from competitors and why they set you up for growth. — Does your team have the intellectual property, expertise in your industry, or list of contacts that makes you a reasonable risk to launch this company? Be able to explain why you and your team are strong assets to this particular venture.
- Have something important and new to say about your company. Bernie Dixon noted that it is clear to her when a company is beyond ideation and early stage because they stop talking about their product or service and start talking about customers.
- Use third party data or articles to tell the story of why your company is meeting a need, but make it recent. Brandon ___ told of a recent email he received that included very compelling stats. When he followed the link, he realized the information was from 2002.
- Get a good lawyer who understands start-up investment documents. Poor documentation with early investors/founders can kill future capital rounds.
- If the conversations continue, do your due diligence about the investor. Talk to other companies they fund and find out how they run their investments. Determine whether they offer more than just money, such as introductions to important clients or industry expertise.
- Understand what type of investor you are looking for to bring capital to your company. Early on it is often friends and family or angel investors that live within 50 miles or so of your company. You would not usually pitch a large venture capital firm with just an idea.
Finally, consider whether you need an investor. Sometimes, the best strategy is to grow as long as you can through sales and other sources of capital like bank loans. This protects your valuable equity shares.
Want more tips on growing your business and getting your confidence on? Check out our new podcast, The 2X CEO, hosted by Launchpad2X founder Bernie Dixon. Subscribe on Apple Podcasts, Google Play Music, Spotify, or Stitcher.
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