TFF #011: How to prioritise investors during a fundraise

Last week I spoke about why you should prioritise your investors.

This blog I will be speaking about how to curate your investor list.

Curating your investor list is one of the single most important jobs you can do for your fundraise.

Do not try and rush this part.

It will take you 6-12 months at least to curate a fully-functioning list.

You will need to find qualified investors, but then also have a network map of how you are going to be introduced to them.

Your goal is to start with 150 names in your list.

With as many warms connections as possible through your network.

In which you will speak to 100+.

We want to have 10-20 investors in the “A” bucket. These are your favourite funds: the dream investors on your cap table. Where their size, geography, industry focus, capacity available are perfect for you and your company. You have to be specific here: if you’re not likely to get a tier-1 VC like Octopus or Sequoia, don’t put them in this bucket.

We want to have 20-30 investors in the “B” bucket. These are investors who are still prestigous, and would be great on your cap table. But don’t have the gravitas like your priority “A” Investors.

The rest of your network should be in the “C” bucket. You should care less about these investor, but rather would need take their capital if everyone in “A” and “B” rejected you.

To be clear — your list never stays static. If you have a mediocre meeting with a high-quality prospect and you don’t think they’re likely to lean in they drop to a B or C. Likewise, if a firm that you don’t think is your top pick suddenly starts engaging and doing work and showing you the love - you might put them as an A because having an offer is important.

Here's step-by-step how to do it:

1. Speak to 5-10 priority "C" investors.

Your first few meetings are not going to be perfect.

And like anything in life, fundraising is a performance. So you need to practice.

Therefore, to start, you should focus on meeting with 5-10 priority “C” investors.

This will give you the opportunity to be asked most, if not all, questions.

Once you have these meetings, you can improve how you answer these questions in the best way possible.

You should be recording yourself and look back at the videos to see how you pitch.

Then never make the same mistakes again.

2. Reach out to priority "A" investors.

One of the most important aims of a fund-raising process is to keep similar firms at the same stage of your process.

So after you have practiced with some of your priority “C” investors, now it’s time to focus on the real goal: your main investor targets.

Your goal should be to be giving your priority “A” investors a 1-2 week headstart.

If you have done this right (relationship building over a long period), then you can message them directly.

If you are starting from a stop start then you will have to make sure that you are sending them reminder emails every 7-10 days.

3. After 2 weeks, reach out to priority "B" investors.

2 weeks after you reached out to priority "A" investors and had first or second meetings with them, you should be reaching out to your priority "B" investors.

Once another 2-3 weeks of you speaking to priority "B" investors, then you should be focusing on priority “C” investors.

4. Focus on the interested firms as a priority.

Most entrepreneurs make the mistake of allocating too much time to taking new meetings or spending time on the wrong investors. Simply because they'll keep meeting with you.

Don’t.

Keep your eye focused first and foremost on any VCs that are A’s and are in your “analysis” or “due diligence” phases.

Sometimes engagement at the later stages seems to go dry. They haven’t said “no” but they don’t seem to be spending a lot of time thinking about whether to progress. It should be obvious to you.

Your job is to create reasons to spend more time with you and to draw them into engaging.

Because the more time they're thinking about you, spending time with you and getting their head around why your opportunity is so exciting: the more likely they are to invest into you.

Due diligence meetings are the hardest to secure because VCs know that these follow-up meetings create obligations for them.

As a result, many entrepreneurs take the easy route of taking new meetings because they’re easier to get, easier to prepare for (you already have a deck) and it feels like progress.

But fundraising is like running a sales campaign. 

And when you get push back from a customer, where it starts feeling difficult, if you do the above it will be like you instead start working on selling to different customers.

As dumb as it sounds, this is a very common playbook for entrepreneurs.

And it usually ends in failure.

The last parts of a fundraise is hard. Damn hard.

But I’d rather see your time and energy go into speaking to interested prospect. Rather than taking too many new meetings.

5. Don't completely ignore new prospects.

I realise I just said your focus should be on interested firms.

But please don’t ignore taking on new meetings entirely.

You want to be focusing on the interested firms, but be ruthless when you think they are going to say no.

And make sure there are still new investors you are speaking to.

The worst thing that can happen (and I’ve seen it many times), is you focus so much on a single investor who ends up saying no after 4-6+ weeks.

All that work you have done, and you are back to square one.

This can be the difference between life and death for your start-up.

So whilst its important to focus on firms later down the pipeline of your fundraising process.