09 Jun 2014

Tricky business: Approaching investors

By Paul Miller

We’ve now worked with over 30 very early stage ventures and many of them have raised investment but only in a very few cases has it been a painless process. Over the next few weeks we’re going to be writing some pieces describing the fundraising journey with a few tips. We’ll cover approaching investors, negotiating terms and closing deals.

First things first. You’ll need a short deck that explains really simply what your venture does backed up by good information about what you’re up to online (even if you’re in private beta, it’s worth making sure your information on your holding page, AngelList or F6S is up to date).

It’s then usually pretty easy to get a few meetings with potential investors, or at least the people they employ to filter ideas and teams for them. You can approach them directly but make sure you keep the email short and punchy – less than three lines is best, don’t send them all the info at once, maybe don’t bother even sending them the deck to start with. Just make it as easy and enticing as possible for them to say yes to meeting up. If you can get an introduction or follow up on meeting somebody at an event, that’s even better.

It’s here you have to lower your expectations. Unfortunately most people you meet probably won’t be brilliant or even particularly engaged. They may well be late for the meeting and constantly check their phone while you’re speaking. They’ll probably tell you all the reasons why your startup won’t work and ask obvious questions that show they haven’t taken any time to understand what you’re trying to do.

Statistically speaking it’s very unlikely if you’re an early stage startup that you’ll raise money from the big firms but they might put you in touch with angel investors they know. Angels in London have a very mixed reputation. Again, while there are some brilliant ones, most are not great – so be very careful. Look at their background to see whether they have relevant professional experience – have they run a startup themselves or worked for one? Have they made a number of investments before? How long have they been investing? A bad angel can cause you a lot of problems down the line and unfortunately the SEIS tax break has drawn in a few unsavoury characters.

How you handle a ‘no’ is very important. Don’t try to persuade them – that’s not going to work. Thank them for their time and say you hope they’ll stay in touch. The good ones will give you feedback or at least a reason why they’re not investing but it’s probably not worth labouring the point. What they’re looking for in new companies is a compelling reason to invest. In a lot of cases investors don’t have a specific reason for not investing.

These days you’ll also be able to get meetings with crowdfunding platforms, eager to get your business – Seedrs, Crowdcube and others. You’ll be invited to pitch at an angel network event and you might be contacted by an ‘advisory’ firm if you get a bit of profile promising to help you raise your next round. It’s not to say that these things aren’t worth it but they’ll all ask you to provide information in a different way. They’ll all mess you around a bit when it comes to calls or meetings. They’ll all ask you to sign documents without properly explaining them if you take it any further. Again, just be prepared for the hassle.

But after the drudgery of repeated rejection and people messing you around, someone will restore your faith in humanity. They’ll be on time. They’ll be friendly. They’ll listen. They’ll ask a good question that shows they understand the issues you face. They’ll make you realise something you’ve overlooked, or give you an idea for a different direction you could take. You’ll realise they’re taking a genuine interest in you and your venture and they’ll ask how they can help.

When somebody does say yes, that’s just the beginning. We’ll talk about what to do then next week.