Using Current Investors to Develop Your Fundraising Approach
Startups are in constant competition for two resources: capital and talent. Without capital, a business fails to exist. Without talent, a business fails to flourish. If you’ve raised venture capital before, you already have some combination of a great product, a highly functioning team and a growing market. To stand out when fundraising, founders need to implement a process to engage their current investors and attract new investors.
Relationships and processes can make or break a successful fundraise; the same can be said for a traditional sale. So why not treat the fundraise process like your traditional sales process?
- Attracting and adding qualified leads to your top of the funnel on a regular basis
- Nurturing and moving the leads from through the funnel with the goal of closing them as a customer
- Servicing customers and creating a great experience until they become evangelists or promoters
A “fundraising funnel” may look something like the process above where you are adding interested and qualified investors to the top of the funnel. Nurturing them through meetings and email. Then closing them and turning them into evangelist with regular communication.
In helping founders raise $800M+ to date in 2019, we have found that focusing on your current investors has the greatest chance to impact every step of the process. Which means, it often makes the most sense to flip the traditional sales funnel on its head and start at the bottom.
Starting at the bottom
There are two primary reasons to start with your current investors (read: the bottom of your funnel):
- They have more capital
- They know other investors
As famed angel investor Jason Calacanis puts it:
“There is a really awesome reason to keep investors updated: they didn’t give you all of their money — they have more! They want to give you more! If you keep your investors engaged with honest updates they will reward you by participating in future rounds.”
To start, most investors and VC firms intend on investing in multiple rounds. Most firms, especially earlier-stage VCs, set aside reserves for investing in their current companies at a later date.
Once you’ve landed an investor, it is vital to form a strong relationship and turn them into your company’s biggest champion. Just as you use customer success to keep your customers happy, you should be intentional about building relationships with your investors and keep them happy, too. Your investors should be your company’s biggest advocate, but that will only be true if you’re top-of-mind for them.
Make sure that relationship is strong, and good things will follow. By turning your current investors into advocates you’ll be able to call on them to help fill the top of your funnel with qualified investors from their network. Or better yet, they’re the first people you can go to when you need more capital in your business.
Making the ask
But what if you are looking to add on additional investors?
It is important to remember that the success of your current investors hinges on your company’s success. The venture capital community is a relatively close-knit community and introductions are often an email or two away. If you’ve been a trusted partner to your current investors they will most certainly make sure they introduce you to any investor you have targeted as an ideal investor. As Andrew Cohen of Techstars wrote:
“Gaining the respect and enthusiasm of your investors increases the amount that these advocates will evangelize your company in their respective circles of influence. Your investors can be your greatest salespeople if you leverage them correctly.”
There is no definitively correct way to run a fundraising process, so flipping the traditional funnel on its head and starting at the bottom can be an interesting strategy.
Use this as a guide for controlling costs, getting to cash-flow positive and extending your runway as quickly as possible.
Companyon Ventures enhanced our Expansion SaaS Benchmarks Data Explorer by building the accompanying SaaS Benchmarks Modeling Tool to measure the current and projected performance of their portfolio against other high-performing SaaS startups. Check out the tool here.