The first startup capital is the trickiest. This may be easier if you are a serial entrepreneur who has already had a successful exit or two and has a close network of viable investors eager to fund something. Out of the hundreds of thousands of business startup attempts each year, most founders aren’t in this bucket.
There are three major steps involved in the process of raising funds. The first is obviously finding investors. Once you find investors, the second step is to approach them and the final step is raising the funds.
I have divided each of the steps into multiple sections to explain to you every minute detail that you should know.
Finding investors is the very first step before you approach them. Before finding investors you have to define who can be your perfect investor, then actually go on finding them and the final step is to approach them in the best possible way.
I have broken down all the three steps required:
How to Decide Who Can Be Your Perfect Investor?
You have to talk to several investors and present your pitch in front of them in order to raise money. But, if you just go on to pitch in front of every investor in the world, things are going to get crazy. And as a startup founder, raising money is not the only thing that you have to do to make your venture a success.
The more targeted the list of investors is, the more time you will save and the ROI on your time invested to raise funds will be much higher.
Having 10,000 investors in your “Approach List” is not something that should be appreciated. But, having just 100 investors that are super targeted, refined, and tailored according to your startup’s funding needs is what should be appreciated and followed.
Below are some factors that you should keep in mind while narrowing down the list of investors. You should combine all factors accordingly to decide who can be your perfect investor.
The sector that your startup belongs to is the key factor to find your perfect investor. Many entrepreneurs just go on asking every other person with an “INVESTOR” tag on LinkedIn and face rejection not because their idea is not worth it, but simply because the investor is not interested in the industry.
You have to find an investor that has invested in your industry or at least is interested in the sector. You have to research the investor before contacting them. Almost every venture capital firm has their website up and running, and you can find the industry they invest in by visiting their websites.
However, the majority of the angel investors does not have any website. You can use networks like AngelList, F6S, CrunchBase, LinkedIn or just simply Google about them to find out which sectors they are interested in.
If the websites or network profiles of the angel investors or venture capitalists do not have information about their interests (sector, industry, etc), you can have a look at their portfolio (past investments) to find out which are the startups that have raised money from them.
You might not have considered that location is still important in this connected world. But it is. You may have read that some Chinese venture capital firm has invested in a Delhi-based startup. The truth is that some investors invest anywhere around the world while some invest in cities nearby.
Some investors may want you to relocate your startup to a city near them. So, you should have a clear idea about the location preferences of the investor. It is advisable to approach investors near you, as the process of funding requires frequent meetings and discussions and you don’t want to run to China every other day.
You can find the location information, in the same manner as you find the industry details of the investors. Most venture capitalists have this information on their website, while the information of those who don’t have a website can be found through social profiles or by just Googling them.
It is advisable to prioritize your “List of Investors” in ascending order of distance. Even if some investors say that they invest in remote startups, you may seriously consider the investors nearest to you as traveling forth and back to and from a remote location will add to your startup’s expense.
Stage & Investment Size
The third most important factor that you should keep in mind while preparing your list is the size of the investment or check that an investor writes. Different investors have different preferences. Some may invest ₹1 crore in seed stage while some may invest ₹5 crore in the seed stage.
One more thing to note down here is the stage of funding that you are raising funds in. There are stages like Seed, Pre-Series A, Series A, Series B, Series C and further on. However, I believe that since this guide is for entrepreneurs with little to no experience in fundraising and thus I assume that you are looking to raise funds for the “SEED” stage.
So, research your investors. Visit their website, social profiles or Google them and note down all their past investments, the stage when they invested, how much stake they bought and how much they invested. You have to select only those investors who invest in “Seed” stage. Large firms like SoftBank and Naspers don’t invest in seed stages and you should not waste your time by contacting them.
CrunchBase is the best platform to find out the portfolio of an investor including the amount they invested and the funding stage. However, you can also find this information by reading different NEWS sites and Googling them. Paper.vc and Tracxn are two more platforms that curate funding data.
The information about how much stake the investor bought in a startup is rarely available. If available, you can find that info in the corresponding NEWS article about the transaction. If not available, you have to download the “funded” startup’s financial documents through government portal (MCA) or by visiting third-party service providers like Tofler, ZaubaCorp or InstaFinancials.
Personality & History
Try to understand that money is not the only thing that an investor helps you with. Look for the connections, network, scalability and advice that a particular investor can provide you with. Research about them and find if they have any past history of issues with other startups.
You may remember how the story of Rahul Yadav of Housing.com ended. Recently, Ola’s CEO Bhavish Aggarwal rejected a $1 billion check from SoftBank just because he feared that this could let the investor take over the control in his startup.
One golden advice is to talk to the founder of a startup from the investor’s portfolio that has failed (if you can find one). This will give you a detailed insight into the behavior of the investor with the founders during tough times.
You have to use your intellect to judge. There may be a situation that the investor has behaved badly with the founder but there could be numerous reasons for that. Using your intellect will help you decide what’s best for you.
Also, find out when these venture capitalists exit the company. Or do they provide funding in subsequent rounds? You want to avoid the situation of having the VCs pressuring you to do an acquisition because they need to return the capital to their own investors (also known as Limited Partners).
Let me explain you the this through an example.
There are four investors that I need to find information about. I researched about them on social media, NEWS sites, and other sources to find out their portfolio and exits. Below table demonstrates their “pressure-time“.
Investor A exits from startups in an average 7.22 years which is a good signal because you will be given 7 years to grow and prosper. You can see that the exit time Startup 1 in Investor A’s portfolio is 1 year. This may be due to some special factors related to the particular startup. You can talk to the founder of the startup to get more information.
Investor B exits from startups in an average 3.22 years which is worrying. However, 3 years is still sufficient for most of the startups in the “SEED” stage to grow at least to a “Pre-Series A” funding stage. You have to judge according to the needs and future plans of your startup.
Investor C exits from startups in an average 10.87 years which is the best as the startups get more than required time to grow and raise subsequent rounds. Most of the investors fall into this category as they want to make huge profits. Holding your stocks is the only option for them to earn unexpected returns.
Investor D exits from startups in an average 1.44 years which is alarming. This investor just cares about his/her money and will probably pressurize you to acquire other companies or be acquired by someone in order to make quick profits. You have to be aware of such investors as you can be in a mess if you deal with them.
Important – Average Time to Exit
The charts below show the time (in years) from first financing to exit, for U.S.-headquartered venture-backed companies that were either acquired (including buyouts) or that issued shares through an initial public offering (IPO), listed by the year of exit.
Now that you understood the factors that you should carry along in the process of finding investors for your fundraiser, the question arises “Where to Find these Investors“?
How to Find Investors to Raise Funds?
There are several methods and strategies to find investors. I have listed down some of the methods used by most of the entrepreneurs. However, these media and strategies are not limited to what’s in the list.
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The internet has it all. You just need to know where to find them. You can find details like Name, Email, Phone Number, Portfolio, Exits, Investment Size, Social Media handles and pretty much everything about an investor by visiting correct media.
Typically there are three ways to find investors for your startup.
These are the websites that maintain a database of investors. AngelList, F6S, Gust, and LetsVenture are completely free to use. CrunchBase, CB Insights and Tracxn have both paid and free versions. The free version comes with a limitation on the number of searches and results. There is another paid website VCCEdge, owned by VCCircle.
Apart from the above website, my favorite tool to find angel investors and venture capitalist is LinkedIn. It has 500 million total users and 250 million monthly active users. Most of them are professionals, journalists, and investors.
You can just search the term “Angel Investor” or “Venture Capitalist” in LinkedIn search to get a list of all people with work titles as investors.
Another great source of finding angel investors and venture capitalists online is following the news. While there are numerous websites that provide startup news, some of the most prominent and regular ones are Inc42, Bizztor, YourStory, TechStory, VCCircle, Entrackr, Entrepreneur, TechCrunch, etc.
You must keep a track of day-to-day funding news using an RSS Feed reader. Whenever a startup from your sector raises funding from these investors, you should add that investor to your “Approach List” and analyze them on various aspects as explained in the above sections.
There are several blogs that offer free and paid lists of venture capital firms, angel investors and private equity firms. You can just Google your query and you will be amazed by the amount of data available online.
However, this method requires some additional labor as no website provides all the data on a single page. You have to work hard to combine data into a single page.
We understand this problem, so we have ourselves compiled some list of angel investors, venture capitalists, and other important contacts.
Below is the data available to us.
- List of 51 Angel Investors in Delhi with Contact Details
- List of 28 Angel Investors In Bangalore with Contact Details
- 25 Angel Investors In Mumbai; Get Ready To Pitch
- 16 Angel Investors In Chennai To Approach For Your Startup
- 25 Angel Investors In Hyderabad To Ask Funds For
- 444 Angel Investors In The USA You Can Approach
Hundreds of startup-related events happen every month around India. Some of the most prominent ones are TechSparks, organized by YourStory and Pulse42, organized by Inc42. However, there are more events organized every day. You can find those events by visiting Inc42’s event section, YourStory’s event listings and F6S.
You can also search on Google to find a comprehensive result of startup events that are going to happen near your location.
One of the most important things to note is your attendance should be pre-planned. You don’t just land at an event and pitch to random investors. When you register for an event, try to find out who are attending those events. Ask the organizer to send you the list of attendees. (They won’t send you their contact information. But just the name and designation will do. You can find them on LinkedIn).
Once you have the list of attendees, try to connect with them on LinkedIn or Email prior to that event. Build relationship and schedule meeting ahead of the date.
Referrals work like a charm. Think it this way. An unknown person approaches you and asks you to lend him some money. Will you lend him your hard-earned money right away? Would you not speculate his intentions, character, etc?
How about when your friend or a relative tells you that he knows that person and he can be trusted? What are your chances of lending him money now?
Investors are human beings too. And you should treat them like one.
Build a relationship with other startup founders and entrepreneurs. Don’t just approach them and ask them to refer to you some investors. Instead, exchange information and suggestions. You can start by complimenting them about their success, or with an honest review of their product as a customer’s point of view.
Entrepreneurs love suggestions. In return ask them to provide them valuable feedback about your product. Work on the feedback, implement them, improve your product, and ask them to re-review it. You can very easily build relationships with fellow entrepreneurs in networking events, or online through various social media platforms.
Don’t even try to chat with 100 founders at once. They are not your email subscribers. You have to treat them like your friends. You do not say the same thing to 100 of your friends at once. You talk to them individually. So, avoid using “mass inbox blaster” or similar sounding tools. Be natural with your conversation.
When you are serious into your relationship, you can ask them to guide you on how to raise funds. If they have not yet raised funds, you can wait till they raise capital. Whatever may be their plan, conversations are going to always help you. If they already had raised money, ask them if they can introduce you to an investor.
Referrals increase your chances of getting funded. Suffice to say, referrals that come in from our portfolio companies get elevated quickly.
Accelerators and Incubators
At a high level, startup accelerators and incubators are organizations that seek to help startups attain success. Startup accelerators tend to focus on providing startups with mentorship, advice, and resources to help the startups succeed, including a Demo Day, a day to focus the attention of the startup investor community on the startups through hosting a series of investments pitches from the startups to startup investors.
There are 100s of startup accelerators in India. You can always apply to an open position and get your startup accelerated.
Finding startup accelerators is different. Most of the web results will show you the top 10 accelerators only. These top accelerators have very high competition. So, we have compiled a list of 100 startup accelerators and incubators in India that you can benefit from. These accelerators are lesser known but are goldmines.
Hiring an Agency
So, as an entrepreneur and the founder of a startup which is bootstrapped, I am pretty sure that most of the bootstrapped startup’s founder does a lot of work by themselves. Due to limited resources, entrepreneurs of bootstrapped startups have been witnessed doing marketing, sales, content development, hiring, and a lot more stuff.
Being busy is the downside of an early-stage entrepreneur.
So, how will you manage time to find investors, enter data into spreadsheets, narrow down your results, prepare a business plan, pitch decks, keep track of your conversations and send emails?
You should not worry.
We at Startup Wonders can help you in all the possible ways. Our customized packages can provide you with the list of investors in any sector tailored to your startup’s funding needs. Furthermore, we will guide you through the whole process, help you in designing pitch decks, preparing business plans and much more. Just go this page and fill your details.
How to Connect with Investors?
So, when you have the list ready with email addresses, phone numbers, social media handles and more, how do you make the first move. The urge to raise funds may compel you to call them one by one and present your ideas to them.
But remember, they are millionaires. And they are quite busy. Often more busy than you are. You should respect that.
Say a big NO to phone calls.
We strongly suggest you find investors via networking events or referrals as it will drastically improve the chances of getting funded.
However, if you have found them online, the next step should be connecting with them on LinkedIn. Yes! that important. Don’t send cold-pitches to them via email.
Once you have to build your relationship with the investor, you can move to email. Or if none of the investors is replying back on LinkedIn, it may be that they are not using LinkedIn frequently. In that case, you can email them.
What to write in email or LinkedIn when you approach investors? I have discussed this topic further in the article where I will tell you secret tactics and strategies that you can use to grab the attention of the investors.
Now that you know the minute details about finding investors and have prepared your “Approach List”, let’s move on to next step i.e actually approaching them.
- The 5 Things You Must Do Before Approaching Any Investor
- Top 3 Mistakes Startups Make When Approaching Investors
- The Truth on When and How to Approach Investors
Before approaching them, you need to some more details like basics of fundraising, how investors make money, startup valuation, documents required for fundraising and making your first move to contact them.
Basics of Fundraising
Fundamentals of fundraising including how much money you should raise, how startups are valued, how do investors make money, etc are important.
If you don’t have any idea about the above topics, discussion with an investor might confuse you. Fundraising is a financial process and requires deep understanding in order to make a converting plan.
I have broken down all the important aspects that you should know.
How much should you raise?
The simple answer to this is “as much as you can“. However, this is not possible in the real world. You cannot ask the investors to invest as much money as they are capable of. That would be dumb.
To answer this question, you have to prepare your financial and expansion plan. This could be easy as well as hard depending on your startup industry and product niche.
Let me explain this with a hypothetical scenario.
Say I have a Media website (i.e. Startup Wonders) and I want to raise money to scale my business. The first step I take is to define three things: current metrics, expansion plan, future projections.
So let’s break it down.
Current Metrics (Hypothetical – just to explain)
Startup Wonders receive around 3,00,000 page views every month and it generates ₹1,60,000 in revenues per month.
We have a team of three writers, one social media marketer, one bookkeeper, and one SEO expert and we pay a combined ₹1,00,000 in salaries to them. Another ₹50,000 is invested every month on advertisements, server costs and other recurring charges like electricity bill, office rent, etc.
The net expense every month stands at ₹1,50,000 and the net profit before tax stands at ₹10,000 per month accounting to ₹1,20,000 every financial year.
Now let’s breakdown things even further.
We spend ₹30,000 on ads, ₹20,000 on SEO and ₹1,00,000 on content. So, the combined amount invested to bring in 3,00,000 page views stands at ₹1,30,000.
This gives us an Acquisition Cost per Page View of ₹0.43 (Expense/Pageviews). And the Revenue Per Page stands at ₹0.53 (Revenue/Pageviews).
Expansion Plan (Hypothetical – just to explain)
Now that we have some current metrics defined, we have to prepare an expansion plan. I want to expand my startup to 10,00,000 page views per month. In order to do so, I have to hire five more writers (salary – ₹20,000 each), two SEO experts (salary – ₹15,000 each) and two social media marketers (salary – ₹10,000 each).
Furthermore, I want to increase the ad spend to ₹1,00,000 per month.
The combined expense that my startup will incur in addition to the current ₹1,30,000 is ₹2,50,000.
Since my startup is already profitable, I don’t have any negative cash flow and I should not plan to use the investor’s money to pay salaries to my existing employees.
So for paying salaries to my new employees and managing ad spends, I have to spend ₹30,00,000 in a whole financial year. That stands at ₹60,00,000 for two years.
So, this is the amount that I need to raise i.e ₹60,00,000
Future Projections (Hypothetical – just to explain)
At our current Revenue per Page statistics, we can generate ₹5,40,000 per month (Revenue per Page View X Pageviews). That’s ₹79,20,000 in a financial year.
Our expenses stand at ₹3,70,000 per month (₹1,30,000 + ₹2,50,000) which stands at ₹44,40,000 in a financial year.
At this rate, our Acquisition Cost per Page View stands at ₹0.37 (Expense/Pageviews). This is 23% lower than our previous ₹0.43 rate.
This is something that impresses investors.
Note – The above calculation is just for explaining to you how to calculate the amount that you should raise. The actual calculation is much more complex and may require projections and metrics of up to 3 years in future. The calculation also changes according to industry and the metrics involved change according to the needs of the sector.
What to Do – You can hire us to prepare a financial plan with future projections including balance sheet, cash flow statements, profit and loss statements, funds required, use of funds, and more.
Understanding different funding stages
There are various stages in which an investor put their money i.e Pre-Seed, Seed, Seed Plus, Pre-Series A, Series A. It may vary according to the investor. Below is the seed gradient that will help you understand the funding stages.
Despite you know how much amount you need to raise, sometimes it may clash with how much an investor wants to invest in around.
For pre-seed, the maximum cap is ₹4.2 crores. In the calculation that we did in the “How Much Money Should I Raise” section, we found out that for getting 10,00,000 pageviews, we need ₹60,00,000. So it should not be a problem.
But, if I want to achieve 1 crore pageviews and need ₹6 crores for that, it will not be possible in a seed round. So, I have to tailor my projections according to the investor. Earlier we told you to note down the size of investment of each and every investor in your list. It will be useful when you calculate the amount that you want to raise.
If the maximum cap for the investor that I am targeting is ₹30,00,000, then I should probably not contact him or change my goal to 5,00,000 pageviews per month.
Types of Funding
Equity (No Tax Deductions)
Equity funding simply means that you raise funds by selling a portion of your stock/shares. This type of funding is the most common. It is advisable to raise funds in equity form as it shares the risk of failure with the investor.
For example, if an investor invests ₹1 crore in exchange of 25% equity and your startup fails, then the company or you will not be liable to pay back the amount to the investor.
Debt (Tax Deductible)
Debt funding (also called as Loan) is another form of investment in investors puts money into a startup in exchange for a promise (contract) of a fixed return after some time. Banks invest in debt funding. In this way, you can save your ownership in your company.
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However, in case your startup fails, your company is still bound to pay back the amount to the investor. In case of non-payment, legal action can be taken and the investor can recover his money by selling the assets of your company
There are some mixed methods of funding like Convertible Debt. Most of the startups raise funds in the form of Convertible Debt in a seed funding round.
What this means is that the investor puts his money in the form of a loan/debt to your company which can be converted to equity at a later stage. This is extremely convenient for both the founders and the investors.
Suppose you raised ₹1 crore in Convertible Debt for 2 years and after two years your company becomes profitable enough to pay back the amount, then you just pay back the investor the pre-determined amount (10%-20% interest) and 100% ownership of the company remains with you.
However, in some case when your company is not able to generate enough profits, the debt automatically converts to equity (determined at your startup’s valuation at that time or may be pre-determined in the contract).
This is the most sought after question in the entrepreneurship world. You may have heard that Flipkart is worth $22 billion, or Dream11 crossed the $1 billion mark.
How are they valued and what the heck is valuation?
The value of a startup is the value of stocks of that particular legal entity. Suppose, your startup is a Private Limited Company which is just started.
You might know that the authorized share capital for your startup at the time of registration should be minimum ₹1,00,000 and the number of shares of your company should be 10,000.
That simply means that a single share of your company is worth ₹10.
Now your startup will continue to grow with time. And as your startup grows, the value of your shares grow up and your startup’s valuation too. There are two cases to this:
When you are bootstrapping
When you have not raised any external funding, and you are bootstrapping your startup, the valuation of your startup is calculated using the Standard Earnings Method (tailored to our understanding and simplicity).
Let me talk about my startup. In the above section, we calculated that our monthly net profits stood at ₹10,000 accounting to ₹1,20,000 every year.
So, how much money one should keep in a Fixed Deposits account to earn an interest of ₹1,20,000. Let’s say that the interest rate of the Fixed Deposit is 8%. So one has to keep ₹16,20,000 in his account to earn that much interest in a financial year.
Thus the valuation of the startup is ₹16,20,000 now. And the face value of shares (cost of one share) is ₹162 (Valuation/No of Shares). Now if anyone wants to buy stocks of the company after one year, you should sell them the stocks at ₹162 per share.
Note – We have demonstrated that the value of each share has increased, but it only happens when authorized capital increases. In any other case, the value of shares remains the same i.e ₹10 and the additional ₹150 that has been added to the original face value of the shares is called the Earning Per Share. We are trying to explain things in the simplest manner as possible. You are an entrepreneur, not a chartered accountant.
When you are raising money
The second scenario comes when you are raising funds from an investor. Investor buys stocks (if you are raising equity funding which is most of the times the preferred method) in exchange for money. Let’s break it down gradually.
Let’s say that your company’s face value of a share is ₹10 (as in the above case) and you sell 25% of your stock to raise ₹10,00,000 from an investor. Now, the value of 25% of your company stands at ₹10 lakhs and so the value of 100% of your company will be ₹40 lakhs (4 times 25).
So the valuation of your company becomes ₹40 lakhs. And the face value of your shares become ₹400 per share (Valuation/Total Shares).
Note – There are more than 10 methods of calculating the valuation of a startup and each investor may end up using his preferred method. You can read about all the methods in this awesome article on Startups.com.
How investors make money?
This topic is quite interesting. And you should know that. The investment industry works on a simple formula “Catch the Bigger Fish”.
Let’s start with angel investors.
An angel investor invested ₹10 lakh in your startup and bought 20% of your shares in a seed funding round. The valuation of your startup stands at ₹50 lakhs (100/Equity Dissolved*Funds Raised).
You get ₹10 lakhs which you use to scale your startup.
After five years, your startup raises Series A round from a venture capitalist. Let’s say you dissolved another 20% and you asked for ₹2 crores.
The valuation of your startup jumps to ₹10 crores (100/Equity Dissolved*Funds Raised). This is the time when the angel investor can make money. He asks the venture capitalist if he wants to buy 10% more stocks for your company.
In most cases, the venture capitalist will buy that (in order to hold more stock and make more profit). But, at current valuation, 10% of stocks will cost ₹1 crore. The angel investor bought that much share for just ₹5 lakh. So, he makes 20X profits within 5 years.
And this goes on.
The venture capitalist sells stocks to international big funds like Naspers, SoftBank, Tencent, etc when you raise further capital.
And the big international fund will finally exit from your startup 10-15 years later during IPO (Initial Public Offering) by selling their complete or partial stake and making 50X profits or even more on their investments.
Pre-requisites to Approach Investors
I already told you about the knowledge pre-requisites to approach investors including market analysis, startup valuation, types of funding, calculating funding amount, etc. In this section, I am listing two important documents that you should have ready before contacting investors.
This is not mandatory but it really helps. If you have some PR, it might be a chance that investor you are going to approach may already have read about your startup. This increase the chances of further discussions and funding.
- How to Get Free Press For Your Startup or Business
- 100+ Publisher / blogs to submit your startup for FREE!
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There are plenty of startup media portals that can cover your journey on their portals and give your startup a nice boost among readers. You can read this blog to find more about these portals.
Moreover, you can also publish your startup story on Startup Wonders. We have more than 300,000 readers including entrepreneurs, investors, and journalists. This will give your startup a nice initial push for sure.
A business plan is a document that contains details like an executive summary, Company description, Market analysis, Organization and management, Service or product line, Marketing and sales, Funding request, Financial projections, Value proposition, Customer relationships, Customer segments, Cost structure, Revenue streams.
We can help you in drafting a business plan from scratch. However, you can also try drafting business plan yourself. In that case, this article from Indiafilings will help you.
A pitch deck is simply a well-structured graphical presentation of your business plan. You can yourself design a pitch deck in Microsoft PowerPoint or can hire an expert to do that. An effective pitch deck takes a lot of effort to create. A good design always attracts everyone. So, we can also help you in designing your pitch deck.
However, if you want to do that yourself, you can read this tutorial to get more info about designing pitch decks. Moreover, you can also see the Pitch Decks of some popular companies like Airbnb, Facebook, Square, LinkedIn, Mint, Mixpanel, Moz, BuzzFeed, YouTube, Sequoia Capital, etc to get an example.
Making Your First Contact
Contacting them on LinkedIn
When you are contacting an investor on LinkedIn, you must keep your introductory note crisp and short. Since LinkedIn allows one-two sentences long message when you send a connection request to any investor, you are bound to keep it as clear as possible.
But, do not ask for money while connecting.
Instead, ask them to guide on something that they are expert in. For example, an investor may be the ex-CMO of a company or an expert in International Expansion. So, you can ask them to review your product and ask them questions related to their expertise.
For example, you can ask the CMO:
I am XYZ, founder of ABC, a fintech startup. Need ur 10 mins 2 discuss which marketing tool should I use for FB Ads. I vl b obliged 4 ur expert guidance.
Or you can ask an investor who an expert in cybersecurity:
I am XYZ, founder of ABC, a SaaS startup. Help me with some blogs 2 learn about cybersecurity as a startup founder. I vl b obliged 4 ur expert guidance.
You can see that I have used “shorthands” for writing messages. This is due to the character limit set by LinkedIn.
However, if you want to bypass the character limit, you can go for LinkedIn Premium and use LinkedIn’s Sponsored Direct Messages to shoot directly to prospective investor’s inbox. Sponsored DMs are limited to 160 characters. You can use the template from the below Email section in Sponsored DMs.
Contacting them on Email
If the investor does not reply on LinkedIn, you can approach them via Email. However, I am giving you the golden rule to follow.
Suppose you have a list of 100 investors. Send a message to 5 of them on LinkedIn and wait for 7 days. If none of them replies, there may be a flaw in your message template. Try to be more creative and crisp with it.
Message 5 more with a new template and wait. If no one replies, change the template again and repeat sending to 5 more investors. But if some of the replies, use that template to send message to 10-15 investors.
If the reply rate increases, use that template to send message to 10-15 more investors. Compare the reply rate with your previous message to 10-15 percent.
If it remains similar or increases, use the same template to send messages to the remaining investors as well as those who didn’t reply initially.
When you finish the above task and get replies from some investors, other investors can be contacted via email.
So, when you are contacting them via email, you can use the below template to reach them. Remember, you have to follow the above golden rule to emails also. Don’t use a template to send an email to all the investors. Test, analyze and repeat.
Hey [Investor’s Name],
I am [Your Name], founder of [Startup’s Name], a [Startup’s Description]. We have recently crossed [Catchy Metric] recently with just a team of [Team Size] people.
Use any 1 optional from below
(Optional 1) I recently read [Article’s Title written by Investor] and it really helped me. The points [Focus Point A] and [Focus Point B] is something I have considered implementing in my startup.
(Optional 2) I lookup to your expertise in [Investor’s Expertise]. Your work as [Investor’s Work Experience in Past Company] is remarkable and I am inspired by [Investor’s Achievements, Awards].
Our team would be obliged if you can spare 15 minutes to give your valuable insights on [Question According to Investor’s Expertise].
I would be happy to provide a [Sample/Test Account] to you to check out our product/service and give your valuable suggestions.
My LinkedIn Profile – [Your LinkedIn Profile]
Startup’s Website – [Startup Website URL]
Remember, every investor should be approached differently. Don’t just copy paste the templates and mass send to everyone on your list. Research about the investors and write a personalized email. The investor should feel that you have taken your time to find out about him and his advice means something to you. If they feel that you are just trying to flatter them with your kind words, your game is over.
How to Convince Investors
Early-stage investors often receive more than 100 pitches per month, which means they need to say “no” to over 99%. In the below video, Alicia Syrett, CEO of Pantegrion Capital, frequent on-air personality on MSNBC and CNBC, shares the most common blunders that get startups rejected.
- How to Convince Investors by Paul Graham
- How to Convince People to Invest In Your Startup
- How to Convince Investors to Invest in Your Startup
- What VCs Look For In Your Customer Acquisition Strategies?
Talk about market needs, nor market size
Entrepreneurs make a common mistake. When they pitch they say that they have a fintech startup and the fintech industry in India is worth $5 billion. If they acquire 1% of the market they would be turning in $50 million in revenues.
This might sound jaw-dropping to your family and friends but not investors. A large market does not guarantee the sales, so a pitch should never boast about grabbing a sliver of a huge pie.
Instead, start from the bottom up and talk about how your product or service solves a particular problem and addresses the needs of a particular niche. I have said earlier that you have to be specific. You have to say that your fintech product can help banks increase their revenue by 1%. Tell about your understanding of the market dynamics, buying behavior and what’s going to motivate a buyer to adopt your product or services over others.
Acknowledge the Competition
Competition may sound like a negative term and one might think that talking about competitors can scare away investors. But it doesn’t work that way.
Investors see competition as a sign that there is an existing market for your product. They look for competent markets and innovative startups. Define your competitors, their revenue streams, their market share, their pros and cons and how your product or service is better than that of them.
But don’t brag about your product. Investors may already have met your competitors and understand their products and service better than you. Try to say only those things that you strongly believe in and feel about. Don’t just say for the sake of saying.
Practice your Pitch
Practice makes a man perfect. Your pitch should be crisp and quick. Investors will not listen to you for 5 hours. You just have 5 minutes to change their mind. Practice, practice, and practice.
Speak in front of your family, friends, and co-founders to make your pitch perfect. Listen to their reviews and work on improving your pitch unless and until the first five minutes of your pitch speaks everything they want to know.
Documents Required for Raising Funds
A startup requires a lot of documents to enter into a partnership with the investor. It varies on the type of investment, investment stage, funding type, sector, and several other factors. You must always consult a Chartered Accountant and a Lawyer before raising funds or signing any contracts with investors.
However, we have listed down some of the documents that are most commonly used in the process of raising funds.
- Founders Agreement – Document signed by founders at the time of incorporation. Includes founder role definition, share allocation and vesting terms
- Employment agreement – A document where an employee is hired by the Company
- Consultancy Agreement – Agreement signed by anyone who is coming on board in an advisory role. Share allocation typically from ESOP pool. Includes share allocation, services rendered and vesting terms
- Non-Disclosure Agreement – Non-disclosure agreement signed by consultants, employees, founders and advisors towards confidentiality of data, product, IP
- Confidentiality & IP Assignment Agreement – Agreement between the founder and the company for assigning the IP being developed to the company
- Term Sheet (Equity based) – Use Equity based for an equity instrument
- Term Sheet (Convertible Based – CCPS) – Most commonly used by angels and VC’s. Use for priced and convertible rounds
- Term Sheet (Convertible Based – CCD) – Use for convertible debt. Can be used to defer the valuation and rights of the round. Preferable for bridge rounds.
- LDD Checklist – Document required for Legal Diligence.
- FDD Checklist – Document required for Financial Diligence.
If you want to know more about any of the above document, you can just search it on Google. You can find numerous services that can help you prepare those documents. Moreover, you can also find templates and use that to create those documents by yourself. Some websites like Vakilsearch, Indiafilings and LegalRaasta can help you with all your legal and financial documentation needs.