This is a question that comes up a lot. When you’re raising money for a startup, how many investors should you be going to, and talking to, and pitching to? I think there’s a lot of confusion out there, and there’s certainly a perspective that you get around a shotgun approach — the idea that the more people you pitch to, the better chance you’ll have of success.
I’ve been following a few answers and feeling this out in a couple of capital raises. And for me, it kind of comes down to a simple qualifying point:
One investor who is well matched to your company and your goals is worth 10 investors who aren’t.
The fact is that when they’re searching for an investor, most folks see it as a process of funds and VCs filtering them out, filtering out the startups they don’t want to back. And that does happen, of course, it’s an integral part of the process.
But another part is the process of filtering on your side. You actually do have to filter through the funds and the investors who aren’t the right fit or aren’t likely to be able to assist beyond writing a check, or aren’t likely to write a check at all.
That level of filtering is crucial. And it’s your responsibility, both with respect to their time and with respect to and ownership of yours.
It’s advisable to begin your search for an investor fit with a clear and firm set of requirements and qualifications:
Connections
- The right investor isn’t just going to give you money and throw their hands in the air. That’s not useful, and it’s not their job. The right folks will be able to make high level introductions and connections where you need them the most, and will be focused on expanding your network. It’s in their best interests — your success is their success. If a VC doesn’t have the connections that can help you step up, I’d be questioning their value and their fit.
Cultural Fit
- Do they represent or resonate with the values and the ideas that are driving your team? Where you don’t find a cultural match, you’re going to open yourself up to friction, with the folks who are writing the checks uninterested in or unsupportive of your strategy or your priorities.
Industry / Vertical Experience
- This is one of the most important parts. A VC who actually has knowledge of your vertical from past experience is going to be 10x more likely to align on strategy, offer valuable advice and insight, track industry opportunities, provide those important introductions, and understand the importance of your products and services in the first place. This is worth gold.
Bandwidth
- A big portfolio might be a sign of success and growth, but it’s not necessarily good news for you. The more they’ve got on their plate, the less interest, influence and input a VC is going to be able to provide. You don’t need constant attention and time, and you don’t need interference but you do need a certain degree of engagement, and a schedule that has no room for you = a VC who doesn’t fit.
If you can chase quality, and you can find the right fit in a handful of filtered, matched and engaged investors, the benefits are going to be huge. Don’t waste your time on a shotgun approach — always be targeted.
[This post by Jon Westenberg first appeared on Medium and has been reproduced with permission.]