Now that you know “Why?”, “With whom?” and “When?” you want to raise funds, and you have mastered the art of pitching, you can start looking for your investors. This is where the most extended phase of your fundraising begins! And believe me, this phase is critical and will require a lot of energy and ingenuity. A word of advice: fundraising is like a marathon. There’s no point in running; you have to start at the right time! That is to say; you have to know who to talk to and where your potential investors are.
Establish an action plan before you raise funds.
In order to maximize our chances of successfully raising funds within the timeframe imposed by our cash flow, we had established an action plan for :
- find and target our investors as quickly as possible,
- follow the progress of our fundraising daily.
It is essential to consider your fundraising as a sales process that you must have thought carefully beforehand, so as not to waste time, because time is against you!
To establish your action plan, we advise you to apply the lessons learned from the marketing of your services to your fundraising. Here are some of the lessons learned:
- define a niche of prospects (in our case business angels)
- know where they are,
- know how to approach them,
- to be able to seduce them.
In order to reduce the delays inherent in the success of your fundraising, generally between 6 to 9 months minimum, we advise you to establish relations with investors beforehand. This will allow you to know directly who to contact and send your pitch as quickly as possible. Knowing where your potential investors are is crucial. Here are our tips on how to find the most efficient.
Target Business Angels’ networks as a priority
The easiest way to find investors is to start by targeting business angel networks because they are the easiest to identify and because their selection process is very long.
A large number of networks exist throughout France. These networks are often specialized in different fields of activity (medical, finance, IT, cleantech…) with a sometimes regional focus.
To find them you just have to:
- do a Google search for “business angels network,”
- go to the France Angels website which is the federation of business angel networks and look at their members,
- go to the ACEC website, which offers a directory of capital investors, and
- register on the gust platform.
The gust platform is an essential step because it will allow you to send a single file to almost all the French business angel networks.
If you are in the IT industry, here is a list of the business angel networks we have discussed with: Club Invest IDF, NETWORK FINANCES, Norm’ Angels (focus on Normandy), SIRS Business Angels, ISEP Business Angels, IT Angels, NEOMA Angels (a bit young), Harvard Business School Angels of France (very few members), ESCP Europe Business Angels, Arts & Métiers Business Angels, INSEAD Business Angels Alumni France, Seed4Soft (focus on IT), Paris Business Angels (extensive network), VAL Angels, Investessor ((very large network) and Angelo.
Define the order of priority
After listing the networks you are interested in, we advise you to call them to understand better who they are. Don’t forget to ask them:
- their area of investment
- their selection process
- number of members
- average tickets per member
- number of cases funded per year
- average amount raised per file
- the presence of an associated fund, and
- what other networks are they working with
This will allow you to rank them in order of interest. We advise you to send your pitch first to the systems you are least interested in. Why should I do that? Because it’s better to start pitching in front of these networks and do your hand, before throwing in front of the other systems that are more interesting.
Be aware of their limits
While business angel networks are easily identifiable and should not be overlooked, you will quickly realize their disadvantages.
Low financing capacity
The problem with networks is that their members generally invest rather low tickets (about 10K per file) in a maximum of 3 data per year. Therefore, only systems with many members can invest amounts close to 300K per case. Fortunately, some systems have created investment funds that allow them to double their investment capacity, but these networks remain a minority.
Strong selection of files
These networks are easily identifiable and therefore have a large deal flow. But for a startup, deal flow means a healthy collection of data and sometimes significant drawbacks in terms of reactivity. Indeed, if some networks are very well structured, some systems do not have the capacity to study all the files, and it is possible that your data will be dropped.
For example, we had to wait four months from the submission of our file to Paris Business Angels to get a pitch date. Other networks never replied to us because they had either suspended their activities or did not consult their gust account.
To avoid these inconveniences, we, therefore, advise you to make a regular update on the status of your file and not to be afraid to call the network to move things forward.
Prolonged or even laborious process
The steps involved in selecting a network are often tedious. Once you have sent your file, you will be invited or not to make an elevator pitch (between 3 and 15 minutes) to individual members (between 10 and 30 people) who will judge the quality of your presentation. At the end of this pitch, you will know if you are selected for the instruction phase.
The instruction will be done by one or more members who have volunteered to work on your file. This is where further disillusionment can occur.
While some people will do the work diligently and prove to be pleasant and intelligent, others will either have little time to give you or will not be competent to understand the intricacies of your services and business model (especially if you are carrying a real innovation) and may waste your time. Unfortunately, you don’t have the chance to choose your instructors.
If the amounts of your fundraising exceed the funding capacity of a single network, we advise you to carry out a co-instruction phase between the different systems to make the process faster and avoid multiple meetings.
The instruction meetings will allow you to finalize your business plan to be submitted to the other members of the network before a pitch (about 30 minutes) in a plenary meeting. At the end of the plenary session, the members will decide personally if they wish to participate in the financing and how much.
The hidden face of your instructor
This is where your instructor’s personality can be crucial to your success. It is imperative that your instructor has an excellent knowledge of your startup and believes in your project because he is the one who, behind the scenes, will sell your projects to his classmates.
Let’s not fool ourselves; everyone is reluctant to invest in a startup they only know through a pitch and a teasing file (about five pages). The other members will, therefore, also rely on your instructor. So, if your instructor is convinced that your startup is a great investment opportunity and is willing to invest a certain amount, his enthusiasm should convince the members he knows personally. A snowball effect will occur if your instructor is recognized by his peers.
We advise you to discuss this power plays with your instructors to put all your chances on your side and identify the leaders within the networks.
The high cost of operation
Beware raising funds from business angel networks has a certain cost, often little known by start-ups. Networks very often take a percentage of the funds raised from their members to finance their structural costs (about 6 to 10%). This can have a real impact on your business plan!
Some networks prefer not to take a percentage and ask the startups that pitch to pay a small amount (about 250 euros). If the philosophy is commendable, it is better to be charged a percentage of a sum due to you, rather than buying a lottery ticket.
Go hunting for individual Business Angels
While many startups manage to raise funds from networks, it is better to go off the beaten track and find business angels who are not affiliated with networks.
These investors are much harder to meet but generally have a much higher financing capacity than network members and can easily complete your fundraising with a few friends and family and have a reduced deal flow. This improves your chances of raising funds.
The success of this alternative is to be able to target and meet these people. Here are the tips we can give you based on our experience.
Read the fundraising announcements
Regularly read the fundraising columns announced in the startup and incubator newsletters. Go back up to 2 years. You will often find the names of private investors. You can also create Google fundraising alerts.
Target support structures
Look at the sites of the support structures and accelerators and try to find the people at the head of these structures to meet them. These people are interested in a meeting because they have fundraising knowledge and a vast network. These people may be interested in investing in your startup, or they will give you advice or access to other potential investors who will act as a referent.
For example, 50partners has a list of mentors on its website. We had contacted them all on LinkedIn and asked them if they were looking to invest and would like to receive our pitch. Some shared their desire to invest with us; others did not.
Sign up for online investment platforms
We advise you to create an account on online investment platforms such as Angel List, Fund, Sowefund and to search among investors and then to contact directly those you are interested in.
LinkedIn is a great place to find investors. We advise you to search with keywords such as “investor, early-stage, business angel, VC, etc.”, look at the profiles found and contact them with a personalized message. Once these people have accepted you into their networks, you will have access to their personal email to send them your pitch.
Prior to our fundraiser, we had already met during events with VCs we were in contact with on LinkedIn. We went through their contacts and added the ones we were interested in.
Remember, the more investors you have in your network, the more easily their contacts will accept you and the more qualified contacts you will have.
Read the press specialized in Private Equity
We strongly suggest that you subscribe to private equity journals. A piece of advice, do it for real! Because this is where you will have the best chance of finding your investors.
Look at announcements related to LBOs and resales, company takeovers and identify outgoing management teams. Very often, these people will become considerably richer during the transaction and will be subject to significant tax constraints, hence their willingness to invest in reducing their taxes.
Also, try to meet with lawyers specializing in private equity so that they can send your pitch to their clients.
Ask for introductions
Finally, word-of-mouth remains a significant source for finding investors. Talk to your family, friends and loved ones and ask them to put you in touch with people who might be interested in investing. These can be former colleagues, former employers, uncles, distant friends, etc. Anything is good to take.
For your information, our fundraiser was conducted with two private investors, both business leaders, who were introduced to us by a friend. Be careful; luck favours the bold. 🙂
It is important to approach your fundraising in a structured process and to monitor its progress on a day-to-day basis. You may or may not scatter and forget tracks. You are not aware of the number of people you will have to meet and re-launch.
Establish a file of qualified contacts
At the end of our fundraising, we had an Excel file of 548 qualified investors with whom we had discussed and sent our pitch.
This Excel file allowed us to keep in mind the name, first name, email, document sent to each person, how we obtained their email and at what stage of the fundraising we were: meeting, sending the pitch (long or short), emails exchanged, investment refusal, reasons for refusal, letter of intent received, expected amount, etc.
Sending personalized newsletters
We also used this file to send personalized newsletters with the good news about the Swap card. We relay them to them:
- the release of new services,
- the progression in our number of users and the surpassing of our pitch objectives
- events in which we were partners
- synchronization with ticketing tools
It is imperative to share your good news to show that you are making progress and that your execution is the right one.