Money Should Never Drive a Startup’s Relationship With Investors

Money Should Never Drive a Startup’s Relationship With Investors

cash-1280x720

Photograph by Scott Eells — Getty Images

 

 

Think long-term.

It’s a given that startups need money at different stages in their development. But you can’t let your need for capital overshadow the real question you should be asking: How do I establish a relationship with the right investors to gain access not only to seed or growth capital, but also to their industry expertise and contacts?

As my colleague Mark Achler, an adjunct lecturer of management and organizations at Northwestern University’s Kellogg School of Management, observes: “The question isn’t when is the best time to pitch, but rather when is the best time to begin a relationship? The easy answer is right now.”

In establishing a relationship, you have to make a great first impression, which is far more holistic than asking for money. The first step is to appear credible by doing your homework about potential investors and knowing their preferences about the investments they make.

Know who you are approaching and their desire to become involved at a particular stage of development. As another of my Kellogg colleagues, Carter Cast, a clinical associate professor of innovation and entrepreneurship, notes: “Capital comes at various stages: e.g., angel funding to begin product development or a pilot test; funding to develop a fully-functioning product and test market with customers; or series A funding to expand the startup team and more aggressively market the product.” With that understanding, if you’re looking for angel funding, don’t go to an investor who only does series A.

Also know their industry expertise. An investor specializing in healthcare may not be the best one to approach about an automotive startup. The same goes for investors who are only interested in companies that sell to consumers if your product is strictly focused on selling only to other businesses.

The second step in making a great first impression is to come across as compelling and interesting by showcasing your understanding of the industry and what unmet need or problem your product or service addresses. Present a well thought out and tested business model. Even if you don’t have customers as yet, show that you know how to acquire them, with a plan and a methodology.

The real payoff in establishing an investor relationship is not measured in dollars—even if you eventually end up securing millions of dollars in funding. In fact, if your objective is only to pitch for money, you’re setting yourself up for either a quick “no, thanks” or a “come back and tell me when you have achieved ‘X.’”

Rather, the best outcome is often the offer to introduce you to a few key people who can help you along the path and a promise to stay in touch with follow-up meetings. That could very well be the start of a meaningful relationship with an investor that spans several years (and yields millions of dollars of investment).

Remember, your meeting is not a point in time; rather it is the starting point of a longer-term connection. Just as in any relationship, rapport and chemistry at the first meeting will inspire others to want to meet with you again. Then you’ll be on the right path to enjoying a truly meaningful and fruitful relationship.

 

[Fortune]

July 1, 2016 / by / in , , , , ,

Leave a Reply

Show Buttons
Hide Buttons

IMPORTANT MESSAGE: Scooblrinc.com is a website owned and operated by Scooblr, Inc. By accessing this website and any pages thereof, you agree to be bound by the Terms of Use and Privacy Policy, as amended from time to time. Scooblr, Inc. does not verify or assure that information provided by any company offering services is accurate or complete or that the valuation is appropriate. Neither Scooblr nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising, for any error or incompleteness of fact or opinion in, or lack of care in the preparation or publication, of the materials posted on this website. Scooblr does not give advice, provide analysis or recommendations regarding any offering, service posted on the website. The information on this website does not constitute an offer of, or the solicitation of an offer to buy or subscribe for, any services to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.