When you are at the stage to raise money and begin to target investors, it is essential to do your homework first. Did you know most investors have an investment strategy or investment thesis? If you are a product company, you would not want to be pitching to a tech investor. It is a waste of everyone's time and makes you look a little foolish. An investment strategy helps an investment fund focus and filter through deals. Most firms tend to have a particular strategy to become experts in that space, thus increasing deal flow specific to that field.
There are other details you should be aware of when reaching out to an angel investor, venture capitalist, or private equity firm:
- Check size range a company typically writes
- Stage of the company depending on their risk preference – the earlier stage the company is in, the riskier the investment
- Industry / Type of company
- Return expectation- different sectors expect different returns
- The time horizon for the investment holding period – most investors have a specific timeline they want to exit or have their money returned
Here are my favorite sites for Angel and Venture Capital research that might help understand the investment process from their perspective and stay up to date on investment firms and industry news.
It is necessary to know your potential investor's thesis to determine whether or not they are the right investor for your company. Ask the question, "What do you typically like to invest in?" and "Do you think my company is a good fit with your thesis?". The fundraising process is a two-way street, so you need to ask questions to see if this investor might fit your company. Taking on an investor is usually a 5-10 year commitment, so you need to feel comfortable with them as they should with you. It is not always about the check size. As Cheryl Yannotti Foland, founder of Lilah B., said, make sure "there's a value add. So while I think it's fantastic to have people who can support you from a financial perspective and help with capital to start your business or continue to grow your business. It also is great to be able to have value add people around the table that can bring something different than what you know."