When it comes to fundraising, finding the right investors to back your startup is key. This is true for nearly all early stage companies looking for capital, but when it comes to impact companies, finding the right financial partners is even more important. Not only do you want investors who see the financial opportunity of your impact company, you want investors who truly believe in your mission. And as we’ve highlighted in our “Spectrum of Impact Investing” post, investing philosophies vary greatly among impact investors. Despite this delicate dance, there are a few things every social entrepreneur can do prepare for fundraising. Impact Engine’s chief investment officer, Tasha Seitz, and chairman, Chuck Templeton, put together a some tips for preparing for and managing your conversations with potential impact investors.
1. Be ready. The best time to raise money is when you have a strong case to make: have some traction and proof points around customer demand, willingness to pay, business model, etc. Bootstrap and conserve your cash until you have those proof points. Bring together a team that can execute, and get stuff done before you start talking to investors.
2. Be prepared. Be able to explain your market opportunity, how your business works, and your unique (preferably) value proposition. In addition, impact investors will want to know what the potential for social or environmental impact is and how you intend to measure it. Come to the conversation with a clear outline of what you’ve done so far to build the business and how much you need to raise to reach the next set of key milestones. Also spend some time thinking about potential questions they may ask and be able to answer them in a credible way, which shows you’ve thought about the key risks and drivers of your business.
3. Be professional, thoughtful, and honest. Everything you do, and everything you say, will be noted by the investor. Investors—especially angel and early stage investors—are betting on the entrepreneur, and you need to convince them that you will use their investment dollars to create real value in the business. That means presenting yourself credibly, responding to questions thoughtfully, and being clear about what you know, what you don’t know, and what you’ll do to figure out the stuff that matters. Be clear about what you still have to prove. It’s okay to present yourself and your company in the best light, but be clear about what you have (and haven’t) done. Being unclear—or evasive—will always backfire in the long run.
4. Target the right investors. When you’re building a company, you should be looking for investors that can add value beyond the dollars they invest. So pay attention to investors who have built a company before, have sector experience, can make introductions to potential customers or partners, or help you raise more money in the long-term. The savviest angel investors want to provide value to the entrepreneurs they invest in. These are the investors you want in your company and on your side. As an impact company, you should also be looking for investors whose values align with yours, which will serve you down the line when tough decisions have to be made.
5. Don’t just talk, listen. Get to know the investors and what they care about. Pay attention to the questions they ask. Figure out what motivates them and how they like to work with entrepreneurs. Read between the lines of the conversation. This will help you target the right investors (see No. 4). Accepting an investment from someone else is an awesome responsibility. You will be living with these investors for years to come, most likely, through good times and bad. Make sure they are the people you want on your boat. Make sure that they understand the risks of the business, when to hold your hand, and when to hold you accountable.
6. Manage the overall investment process. It’s up to you to create momentum towards a close. If you can get credible investors to commit early—people who understand your sector and can add value to the business—it will signal to others that your company is a good investment. Even better, have good news to report about progress business has made as you move towards closing your round. Investors will move quickly if they see momentum and think they might miss out on a good opportunity. Your job is to pace all of your various conversations with investors towards a close. This can be really hard because fundraising can take a lot of time and energy. But if you lose momentum in the process, it’ll take a lot more time and energy to get the fuel you need for your business. Make sure you have enough conversations going at one time and make sure they all move along. Always ask what the next step is and don’t let the conversations go cold; they may never warm up again.
7. Don’t let the “no’s” get you down. Investors say “no” to companies 99 percent of the time, for a lot of different reasons. Every investor has a story (sometimes many!) of the company they passed on that became a huge financial success. Just because an investor turns you down, it doesn’t mean you’re never to going raise money, or that you’re not going to build a successful company. It may be a function of fit, or timing, or a bad experience an investor had in the past. If you’re not hearing a lot of “no’s”, you’re probably not having enough conversations!
Image credit: Image by Simon Cunningham, licensed under the Creative Commons Attribution 2.0 Generic license