Start Building Your Investor Network Early
Getting to know investors before you start officially fundraising makes the process easier.
đ Thought Bubble: Start Building Your Investor Network Early
A common question we hear from founders is whether they should start talking to investors before theyâre actually fundraising. Some founders are worried about not being at a certain milestone or not being at a point in the business where it is âbuttoned upâ enough for investor conversations, but for first-time founders and/or those without a venture capital network, it can actually be highly impactful to start meeting investors and building that network prior to fundraising.Â
If youâve been listening to VC Minute and reading this newsletter, youâve heard/read this a million times: early-stage fundraising is relationship-driven. The earlier the company, the more the investment decision is based on the founder and founding team. Without a product or market traction, the team is really the only thing an investor can truly evaluate. Sure, vision is important, but itâs meaningless without founders that can execute.Â
As Neha Govindraj, CEO of Bonside, discusses in episode 138, meeting investors ahead of a fundraise helps build rapport and enables them to see the business grow in real time. When you do finally go to fundraise, the process is a lot more efficient because youâre talking to investors that know you and have seen the trajectory of your business. If you wait until youâre officially fundraising to start talking to investors, youâre stuck trying to explain everything that has happened over the course of months in 30 minutes.
There are also a couple of other key advantages to building your investor network early. First, it enables you to truly focus on getting to know the investor without the pressure of trying to close a round. Not having an ask can make the conversation feel less transactional. Second, talking with investors will give you intel on the market, allowing you to plan for a round and growth trajectory aligned with what is realistic for the market. As the past year has indicated, the venture capital landscape can change quickly and the types of metrics different investors look for can evolve.Â
This all sounds great, but for most founders without an investor network, the hardest part is tactically where to start. My first piece of advice is to not just blindly cold email. It might seem like the easiest way, but thatâs exactly why you shouldnât do it. Instead, take Nehaâs recommendation and see if you have a mutual connection with an investor on LinkedIn. If you do, ask your mutual connection for a warm intro.Â
If that pool is limited or nonexistent, though, try attending networking events that are geography or industry specific to your business. You never know when you might bump into an angel investor (see episode 131). Youâre also likely to meet âsuper connectorsâ that can give you a rundown of who is who in the region or a specific vertical and maybe even connect you with an investor or two.Â
Another way to build your network is through your alma mater. Some universities have initiatives or alumni angel groups that support current or former students in their entrepreneurial pursuits. Even if they donât, tapping into your alumni network might yield helpful connections.Â
Lastly, once you do find an investor, if youâre worried they wonât take the meeting, donât be. As Neha points out, itâs literally their job. Plus, information is power, and investors love being the first (or one of the first) to âdiscoverâ a potential investment opportunity.
đ Vertical SaaS Metrics to Know
Building a vertical SaaS company? Check out this list of metrics to track. Even if you have minimal traction, it doesnât hurt to start building a process for tracking these. While some of these require a bit more time, data, and traction than what is typically seen at the earliest stage to be meaningful, Seed investors will appreciate the data-driven foundation youâre laying to drive future business decisions.
đď¸ State of Private Markets: Q2 2023
Carta released their latest research on Q2 venture funding in the State of Private Markets: Q2 2023. Some key takeaways:Â
While funding was up 26% from Q1 23, itâs still the lowest Q2 since 2018.Â
Nearly 20% of rounds were down rounds.Â
The number of Seed-stage deals decreased, but valuations at the Seed-stage went up by 5%, to $13.7M.
đ¸ Advice For Calculating TAM
Itâs no secret that VCs want to see a large total addressable market (TAM), but calculating this is as much art as it is science. Firstbase published an in-depth overview (here) that sheds some light on best practices for estimating TAM for startups. My favorite takeaway is that there is no single right answer for a businessâs TAM, which is why itâs important to be very clear on your assumptions.
đ´ Decompression Zone
Starting can be the hardest part of any creative activity. This interview with The Onion founder, Scott Dikkers, discusses the creative process and how to overcome common roadblocks that prevent people from fulfilling the innate desire to produce. The entire article is worth a read and will get you thinking, but the section âThe quick and the deadlinesâ was particularly actionable for breaking out of your âeditorâs brainâ and knowing when enough tweaking is enough.
đ Have a great weekend!