In the world of startups, time flies and if you’re a founder or have ever been apart of a startup you’ll know how fast a $150K seed round can go out the window. In one moment you’re building out a talented team of marketers and engineers and in another you’re scrambling for funding. This highlights the importance of managing startup financials but it also got me thinking about the quickest possible way to find investors and raise capital.
If you’re a brand new startup or still in the idea stage, the quickest solution is popular and quite simple. In this case, the quickest way to find investors is by raising capital from friends and family. This allows you to dive into a readily available network and raise a small amount of capital to turn an idea into reality or possibly kickstart your small business.
Friends and family rounds are generally very small and are only beneficial to small and very-early-stage startups. If your company has salaried employees, a friends and family fundraising round will almost certainly not be enough. This is when VCs, angels, and other professional investors come into play.
When it comes to professional investing, the stakes are raised and so is the complication of investments. The world of professional investing is far more complicated and more demanding than a simple friends and family fundraising round. It can be quick and relatively painless or take months to simply find an interested investor.
How to Quickly Find Investors and Secure Capital
It’s a difficult question when you begin to look at the endless list of variables that determine whether or not an investor takes an interest in a startup: revenue, founder backgrounds, structure, market size, stage, industry, idea, and tons more. To streamline the founder’s journey of acquiring investment, we outlined which investor outreach processes and structures will yield the quickest results and how to structure for your raise to avoid potential delays.
Where to Find Investors
Investors are everywhere, but how do you find them or better yet, how do you get in contact with them? Fortunately, the world is more connected today than ever. It’s possible your next investor is just one handshake away.
In order to find investors you'll first need a way to build lists of the investors most likely to back your raise. Below are a few tools that you can use to achieve this.
1. Your Personal Network
The best and quickest way to find investors will always be through your network. It does't matter if a founder is a recent college graduate or has a small network, with a little elbow grease and a few days in a coffee shop, I’m sure you can pull a few contacts that have connections with investors. This entails reaching out to friends, family, former co-workers/ bosses, and tapping into anyone within your network who has potential connections to investors.
Asking for an introduction to investors is not a small ask. Almost everyone, myself included, see investor relationships as valuable. Show whoever will be making the introduction that you're serious and prepared. Given the option, do your best to avoid electronic communication and meet in person or even over lunch. In the event of an introduction, your professionalism reflects on your friends and giving them confidence will only help your chances of receiving an introduction.
2. Search for Investors on LinkedIn
Today, LinkedIn turns the least connected into what would be considered a highly connected individual 15 years ago. Practically everyone in the business world is literally a single search away, making LinkedIn an incredible investor prospecting tool.
I don’t recommend hopping on LinkedIn and randomly connecting with anyone out there that calls themself an investor. Start by doing some research and ensuring the contacts you are connecting with are valuable and have mutual connections. Remember, the best way to approach an investor is through an introduction. To narrow the field you can search for investors and sort by “1st degree” connections. This will produce a list of prospects who have a mutual connection and are likely prospects for an introduction.
3. Explore Angel Co & Crunchbase
LinkedIn offers a great search for investors but narrowing down to a valuable audience can be strenuous. Angel Co and Crunchbase both boast thousands of investors with past investments, highlighting the most active investors.
If you have the time to be meticulous about investor outreach, sorting through Angel Co and Crunchbase investor audiences and narrowing it down to the most active investors is a great way to go about it. From here you can run a quick search on LinkedIn to find, connect, and engage with them.
This process of outreach works wonders when coupled with investor identity resolution (more on that below), allowing you to more precisely target them on multiple channels by email, social, and phone.
4. LeadLoft's Investor Database
If you’re looking for the quickest way to find professional investors for your raise and need investor contact information, LeadLoft's investor database is likely the best solution. LeadLoft's investor database enables founders to search and sort through hundreds of thousands of investors. Founders can narrow results by applying filters to narrowly target investors that match their ideal investor demographic.
LeadLoft offers a variety of extremely powerful filters:
- Investor Type
- and more
Save Investor Contact Information
Best of all, founders can save investor contact information with the click of a button. This can be used for mass investor outreach and even integrated with CRMs for more efficient deal tracking.
Finding the “Right” Investors for Faster Results
There are different kinds of professional investors and some will be better suited for your raise than others. It best to spend time engaging with investors who have a direct interest in the stage of your startup. If you’re best suited for an accelerator, you can speed up your raise by avoiding the many requirements VCs might make like restructuring your corporation, adding vesting agreements among the founders, offering preferred shares and pro-rata rights, to name a few.
Early Stage Investors
Friends & Family
As mentioned earlier, friends and family rounds are a great mechanism for kickstarting a company or proving a concept. It generally involves very little capital and is best suited for startups in the idea stage. Keep in mind that you’re raising from the people closest to you. This means they’re likely to be more generous and it’s important you do not take advantage of their generosity. Be sure they only invest if they’re willing to lose every dollar of their investment because the chances are that they will.
Accelerators are essentially seed investors who offer guidance through the start-up process. It's important to note that many accelerators are not qualified to guide startups despite what they boast on their website. Do your research to ensure the accelerator you're applying to have a qualified team or a strong startup background. Two great examples of awesome accelerators are 500 startups and Y Combinator.
Angel Investors can be found almost anywhere. They're essentially rich people who invest for fun. You'll find that most Angel Investors invest looking for a return but you can also find some who invest in passion projects like environmental causes.
Angel investors are more commonly found investing early-stage startups but you can also find them in bigger rounds. A great example of a larger investment is Front’s $59mm rounds funded by other software founders.
You may also come across angel groups. Aaron Harris, a Y Combinator partner, recommends being wary of angel groups because they “like to get together for meals and grill new founders and not invest.” Do your research and ensure the angels you’re engaging with are currently active and looking for new investment opportunities. This can be done by looking into their most recent investments. If they’ve been out of commission for a few years, it’s probably best to move on.
Equity crowdfunding is the offering of SAFEs, equity, convertible notes, rev-share, and more in exchange for cash via online public offerings. You could say it’s like Kickstarter or IndieGoGo but with securities instead of pre-sales. They generally take time to set up but can be an awesome tool when other options are ruled out or if you’re trying to offer a stake in your company to your community. If you’re looking for more information on equity crowdfunding, check out Howard Marks article here.
Later Stage Investors
If you’re in need of a small round of seed financing, earlier stage investors are the best route. Alternatively, if you’re raising a larger round, VCs will likely be the best approach. VCs are best saved for later because of the demands they impose on startups. VCs like to have input over startups meaning possible voting rights and board seats. It’s important to prepare yourself for the reality that fundraising from venture capitalists may take longer than you can afford and to take the necessary steps to ensure your company can stay alive.
How to Structure Your Raise for Speed
The structure of your raise will have a huge impact on the speed of your fundraising. Different stages will offer different levels of complexity and the more complexity in a raise, the more time you’ll need to iron out the details with an investor.
SAFE - Early Stage Startups
For earlier stage startups, there is an awesome new structure, introduced in 2013 by Y Combinator, called a Simple Agreement for Future Equity (SAFE). The SAFE was introduced as a simple replacement for convertible notes as a way for investors to quickly finance early stage startups while freeing the startup from unnecessary obligations and complications. The SAFE achieves this with provisions that go into effect upon subsequent equity rounds. The most popular provisions being discounts, valuation caps, and different variations of the two.
So how does this help raise capital more quickly? Relying on subsequent equity rounds means the need for a valuation goes out the window. This is great because finding a valuation for early-stage startups is practically impossible. How can you invest in a company that’s worth nothing? You can’t really. The SAFE solves this by providing startups with capital and rewarding early investments through a discount or valuation cap and leaving the valuation for future investors to figure out.
The SAFE isn’t perfect though. It sacrifices some key advantages investors generally negotiate and receive through a preferred equity round, commonly a series A and beyond. As a result, many Angels investing in SAFEs will generally keep their investments small due to the lack of control.
Equity - Series A, B, C, and Beyond
As mentioned earlier, equity is a difficult fundraising mechanism for early-stage startups. Raising capital via equity under a series A or beyond makes sense but will also take more time. You’ll need an independent appraisal or 409a Valuation to determine the equity value of your startup which can take days or months depending on the size and complexity of the company.
If you’re not prepared for the large legal cost of structuring an equity round, equity likely isn’t a great route for your startup according to Springmeyer Law.
Convertible notes operate similarly to SAFEs but offer less standardized terms. While SAFEs convert at subsequent equity rounds, a convertible note will likely have a maturity date in which the convertible note will convert into equity. This makes them a great option if you believe your startup will grow rapidly before the maturity date.
Similar to SAFEs, convertible notes overlook investor negotiations and will likely defer them for future investors to figure out. This has made convertible notes a favorite of early stage startups but comes with drawbacks similar to the SAFE. The delayed conversion into equity can lead to investors deferring to future equity rounds so they may participate in investor negotiations.
Although convertible notes are generally used when valuations are difficult or impossible to determine, more recently, a trend of later stage startups turning to convertible notes has emerged. JUUL, the popular e-cigarette company, is a great example having raised 700 million through a convertible note. The reason, noted by TechCrunch, is to avoid a down round and additional dilution.
When raising capital, be sure to plan it years in advance. Take this time to build a great list of qualified investors to drive investment negotiations from the start. At the end of the day, finding investors quickly is no easy task but in today's world, investors are literally everywhere, making it easier than ever before. If you’re in need of investors, follow our tips and get started my challenging yourself to simply get started. If you don't know where to start, checkout LeadLoft's investors database. Alternatively, if you're in need of support, feel free to contact me at firstname.lastname@example.org and we'll work with you to set up an investor outreach process that books more investor meetings than you can handle!