The psychology of seed-stage investing is complex. As the one raising money, it’s easy to fall into the trap of treating the process like a transaction.
But at the seed stage, neither investors nor the startups can make accurate predictions on numbers alone. Investors look for other data points to evaluate the opportunity, such as the strength of the team and who else has already committed to invest. For seed-stage startups, investors are one of your most valuable team members. It’s not just about their money. Of equal importance is the wisdom, insight, connections and best practices they can share with you.
When we opened Stylyze’s seed round, I didn’t understand this. For the first few months of our campaign, I was under the false impression that raising money was about, well, raising money, and I should gratefully take money from whomever was willing to invest.
Those same months were when I experienced the most discouraging investor meetings, but I did eventually hit my stride. The breakthrough happened when I started viewing raising capital more like team recruitment. I made “attract people, not dollars” my mantra, and going into board rooms with that approach played a huge role in closing a seed round — not only with enough money, but with the right people on my side.
The three tactics outlined below were key in executing this mantra.
Define Your Investor Persona And Create A Targeted List
To recruit the right team of investors, entrepreneurs will find greater success if they first define who will be the best fit for their company. Form an “investor persona,” much like you would form a customer persona when building your go-to-market strategy. Create a wish list of investors who speak to you on a level beyond their wealth and success. It should be a list of people who you would be excited to send regular updates to and share good news with, or know will give you sound advice through turbulent times.
I was under the false impression that raising money was about, well, raising money.
Most importantly, set boundaries and stick to your values. Think about your working style as a team. Think about the depth of expertise you are seeking from investors. Do you want investors who specialize in your industry, or who have a broader business focus? What kind of culture do you want to create among your team of investors? Other than capital, what do you need and expect from your investors? Why do they invest?
This practice helped improve our traction with our seed round. After those first few discouraging months, I realized that part of the problem was that I was targeting the wrong investors. Once I clearly identified our ideal investor and created a targeted list, we were able to find the right investors and close our round.
Find High-Value Connectors And Influencers
An important part of gaining access to your target investor list is to identify who your connectors are. Not all introductions are created equal, and high-value connectors are defined by the weight that their introduction carries. By identifying connectors who are credible influencers in your space, you have a much greater likelihood of getting a positive response from the intro.
Examples include portfolio companies of the investors you want to meet with as they are already guaranteed face time, other entrepreneurs who have successfully raised capital, active investors and investor groups and service providers such as legal counsel who are actively working in the investment community.
Our team of connectors included our advisory board and legal counsel. With their help, we created a list of investors they could get us a first meeting with and gave us tips on how to adjust our pitches to better appeal to each one.
Finding high-value connectors who will champion your company with target investors is invaluable and will greatly accelerate your campaign.
Close A Lead Investor
Seed rounds are often comprised of several individual investors, but that doesn’t mean you can’t seek a lead investor to work with. Lead investors can be individuals or groups who are committed to helping you close a large portion of the round, either directly or through their network. Your lead is usually someone who is as on fire and confident about your business as you are.
Building a startup is a marathon, not a sprint.
In my case, our lead investor made a huge difference. Raising money can be a lonely job, especially as a sole founder, that is guaranteed to be a roller coaster of ups and downs. Our lead investor helped us close our round, and also was a source of daily advice and encouragement and made startup fundraising fun.
When recruiting a lead investor, it is critical that this individual fall into the high-value connector category. Great people flock together, so the goal is to attract a truly great person who strongly aligns with your target investor persona and has a whole network of other similarly fantastic individuals they can bring to the table.
At The End Of The Day …
One of the reasons we become entrepreneurs is because we are passionate about what we do. See your investors as people and valuable team members, not check-cutters, and you will be more likely to land the resources and capital you need.
Building a startup is a marathon, not a sprint. Just as it’s important to find a co-founder whom you respect and with whom you are aligned, it is necessary to find and work with investors who share your core values and are a part of your culture so you will continue to love what you do.