I'm a VC With Over 50 Startup Investments. Here Are the 4 Secrets to Securing Funding for Your Ventures. Investor relationships are crucial in most businesses, but navigating them is no walk in the park. These insider tips from a former founder and current venture capitalist reveal how entrepreneurs can tap into the investor mindset and masterfully manage investor relations.
By Zain Jaffer Edited by Kara McIntyre
Key Takeaways
- Start connecting with investors early to establish lasting relationships well before fundraising begins for better results.
- Maintain investor trust by under-promising and over-delivering on commitments, avoiding hype and ensuring accuracy in all updates.
- Use committed investors to your advantage by having them introduce you to co-investors, and keep them regularly informed to build credibility.
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A solid network of investors is indispensable for any entrepreneur. These connections can open doors and write checks for you when you need them the most. If you get it right, investors might even continue to back you far beyond your current venture. However, mastering investor relations is a complex process.
Sure, there's research that covers basics such as making a good first impression, nailing your pitch and ensuring investors are the right fit. Yet there are also some hard-learned tips that you will only hear from an insider.
Based on my experience as a founder who's generated a 200x return for my first investors, and in my current role as a venture capitalist with 50+ startup investments — I've learned quite a few actionable tips along the way.
Related: 5 Tips for Navigating the Entrepreneur/Investor Relationship
1. Reach out to investors far before you're ready
Avoid the typical rushed process of pitching investors you've never met before on a tight timeline. This creates a transactional feeling and gives investors an easy excuse to pass.
You should aim to engage investors on an emotional level, where they are left feeling like they've known you personally from the start. To achieve this, you should reach out to potential investors earlier than conventional advice suggests, even if your idea feels unpolished. Be sure to communicate that you aren't fundraising, but seeking to build a relationship ahead of a potential financing.
It may take time to get meetings scheduled as there is no urgency. However, if you stay persistent in following up, you'll get the opportunity to finally meet and have a genuine conversation rather than a high-pressure pitch.
Try to make two new connections like this per month. Over time, this will grow into a large network you can tap into when you eventually need the cash. When that time comes, it won't feel like a rushed process either and the odds will be more favorable.
During my time as Founder of Vungle, I implemented this strategy over several funding rounds. On one occasion, I had seven competing term sheets for our $17 million Series B financing, and it only took some text messages to get the first offer.
Related: 4 Expert Tips on How to Network to Find Investors for Your New Business
2. Don't share good news until it's 100% confirmed
When meeting investors, be mindful to only share numbers you're confident you will beat. You should under-promise — and over-deliver.
You'll often find that some investors have an uncanny ability to recall every detail from prior meetings. Know that investors take notes or upload their thoughts into their customer relationship management (CRM) after every meeting.
When I meet entrepreneurs on behalf of my venture capital fund at Blue Field Capital, I have a log of every major fact a founder has ever shared with me. I occasionally encounter a founder who hypes up their business only to disappoint down the line. If I notice a repeated pattern of this behavior, it can break my trust in the founder and I'll be less likely to invest. This is precisely what you want to avoid.
It's better to only share positive news when it's confirmed. Don't set yourself up for a situation where you're pressed to justify what didn't materialize, like a big customer you didn't close or revenues that only grew 50% instead of 75% (when ordinarily 50% is impressive growth).
Another tip: Be upfront about the challenges you're facing and seek advice from investors. Later, point to how their advice helped overcome obstacles. This approach increases the emotional attachment and creates trust.
3. Make new investors raise money for you
Once you have confirmed investors in a funding round, ask for introductions to at least three co-investors they recommend. A word of warning: Ensure you have a clear verbal or written commitment before seeking introductions. Otherwise, you risk potential investors talking themselves out of investing as it only takes one skeptical investor to convince the others.
Instead, you want a strong reference who will champion your deal. Investors will see the opportunity as de-risked when another investor they respect has already done the due diligence and is 100% committed.
I witnessed this first-hand when I came to Silicon Valley as an immigrant with virtually zero connections in the U.S. I raised a $2 million seed round from 30 different investors, primarily by piggybacking on that first investor commitment and introductions.
Related: 7 Ways to Maximize Mentor Relationships in Business
4. Hold up your end of the investment
Unfortunately, some investors experience radio silence after investing in a company. While they want to give founders space to execute, they also need updates for their own investors (yes, VCs have their investors too, known as LPs).
If you consider that your investors need to update their LPs every quarter, you should appreciate the importance of sending your investor updates at least once per quarter, if not monthly. Please don't ghost your investors!
You should always provide a formal written update regardless of whether you're also delivering news in person or virtually. Always start each update with key metrics like revenue, cash balance and cash runway. Ideally, this is presented in an efficient format such as a table or graphs.
Don't make investors labor through a long update without addressing headline items first. Otherwise, you risk losing their attention as they'll skim through your presentation for this information regardless.
Related: What Does the Venture Capital Due Diligence Process Look Like? Here Is Your Step-by-Step Guide.
When you make life easy for your investors, they'll appreciate the way you operate and will likely want to continue working with you. That's how "repeat founders" or "serial entrepreneurs" skillfully raise large amounts for their next venture, often regardless of how their last company performed.
Investors make decisions on an emotional level and by following these insider tips, you can build trust and manage investor relations like a pro.
