Most of the startup stuff I do is pretty exciting: crunch through numbers, talk to customers, build new products, figure out marketing hacks! But this part of being a startup founder… sucks. Learning how to find investors was exhausting, time demanding, and it was emotionally draining because the truth is most of the time I got rejected.
But we have to do it, don’t we? It’s part of the job. The process is all about network, and this is the hierarchy that you want to follow:
As you can see, cold emailing investors is an absolute last resort. I get so many founders frustrated by how their cold emails are not working, and the truth is, they won’t work. Raising money from investors you cold emailed is extremely unlikely. Not impossible, though, and I know a tip or two. But we’ll get there.
Let’s start with people you know, a category we like to call Friends, Family and Fools.
As you all might know already I’m Costa Rican. Even though my dad was a small celebrity back home, my family doesn’t have a lot of money, and therefore, not a lot of friends with a lot of money. Also, it’s Costa Rica: $500,000 is a lot of money any way you slice it.
And I still was able to raise some friends and family money. A testament to how it’s not impossible, and in my opinion, a must.
When you go looking for investors, strangers, people you don’t know, they will expect you to have raised some money from your own network. They will expect you to have depleted that option before pursuing money from strangers: but I can’t count the number of companies that just skip right through the cold emails.
If you are building a software company in 2021, you really don’t need a lot of money to get started. You don’t need to buy servers, or a backend. Everything has been platformed: AWS, Google Cloud, Intercom, Mailchimp- it’s all built, and it can scale with you.
You and your team should be able to build a product prototype with something under $100K. Yes, because you are taking way below market salaries, because you believe in its long term potential. $100k is obviously not enough if you are hiring an agency to build your prototype or to market your product- but if you are doing that you haven’t been listening to my videos, and you are likely doomed. Harsh truth.
This friends and family round is not $500K. It’s probably $100K or $200K made up of 5-10 smaller checks. But again, for most companies it should be enough to get off the ground. To build something and prove that people want it. So how to find investors at this stage?
This investment won’t come from your traction or your revenue, it’s probably the only round where your traction won’t really matter. This investment happens because people that know you believe in you and your capacity to build a company. They believe in the idea too, but it happens mostly because of your and your team. For the investor (parent, uncle, friend) that’s an easier decision when you have a relationship with the founder, rather than a complete stranger.
And again, future investors will judge you for your capacity to raise money from this network. That’s one of the reasons why Silicon Valley is such a fantastic hub for startups. If you grew up in the Bay Area you are likely to have friends and family who work in startups, understand the ecosystem well enough to make small bets on these ideas, from their FRIENDS. I touch on this in our video about Silicon Valley, and on the Paypal Mafia, if you want to check those out.
There is no definitive standard to how to pitch or approach these potential investors. Many of them might not be investors at all, just people who can make a small bet in a company and dip their toes in venture capital.
Sometimes you’ll need a pitch deck, sometimes you’ll need to invite them for dinner. Many times they won’t understand convertible notes (we also have a video on those), and how at this stage it’s a better vehicle for investment than equity, but you sort of have to do with what you have.
The bar on what’s a seed round vs a pre seed round is blurry. My friend Devrim, the CEO of Superpeer, raised $2MM on what I would call a pre-seed round: first money in, before a prototype was ready. You should watch his video on how to find investors, and his story on building a network is pretty great.
But the point here is any round above $500K will actually require angel investors or early venture funds, rather than friends and family.
But, you can also have them in your network. And that’s a job that you have to do from day one of being an entrepreneur: get connected.
Once again, I’m a foreigner to the startup world and two things were key to the network I have today:
We can debate a lot about the value of accelerators, but one thing they are good at is giving you a soft landing, a kickstart to your network.
You’ll meet founders who you’ll befriend, you’ll work with the partners (Steve Barsh was one of them, and look at us now) and for a brief period of time, you’ll get all the intros you want.
That, to me, is one of the biggest values of accelerator programs. 75% of the people who watch our content are not in the US, and this one's for you, if you don’t have a network of investors, an accelerator program is likely the best way to fast-track that.
Even if you are in the US and didn’t grow around one of those hubs.
So the point here is, get to know people. In this tech ecosystem, that relationship often has a very tangible, measurable payoff, you know, besides, friendship and stuff.
Even today, running Slidebean which is not raising money at the moment, I reserve some time every week to talk and follow up with the investors I know, or to get to know new people. It’s a long term play and when you actually need the cash, there is no way to fast track relationships.
To help ease this process, we are launching a new feature on Slidebean today that tells you which accelerators are compatible with your company, which ones are open for applications right now, and which ones are close to a deadline. Check out our Accelerator Finder.
The last point I’ll make here is your investors will likely introduce you to other investors if they believe in you. I’d say at least 20% of the money we raised came from these second degree intros that were introduced by one of our current shareholders.
Many times they will just do it themselves: again, Devrim saw this happen for their first round of funding.
But you can also ask for intros. Here’s how to request an intro.
Have some touch on this email. Be nice, but get to the point, especially if they are busy people. Say why this intro is relevant to the investor.
Bonus: I like to include a small blurb in the same intro request email. That way you can get things moving faster and you save them some time on having to write a blurb themselves.
All of the investors in our company came through one of those methods. I have gotten into advanced conversations using the methods below, but none of those deals ended up happening. I think you can consider that fair statistic on success rate.
Now this is by all means a tedious task, especially for a founder. You have to go on angel list, filter, find, go on LinkedIn… wouldn’t it be awesome if someone automated that.
We did. Slidebean is a pitch deck builder but we recently added an investor finder, which takes care of that tedious part for you. We crawl the web to find investors in your space, your area, and send them to your inbox every week. Now all you have to do is find a way to get connected with them.
So remember, these three options I have mentioned are the ideal ways to meet investors. There are other ways, yes, but they are generally more effort, less effective. Make sure you exhaust all options and connections before moving down this list.
So if you don’t have second level degree connections, here are a couple more things you can try.
Disclaimer - I have never met an investor at a conference or event, but I know people who have. Pete from Jackpocket met his first investor at SXSW.
I’ve been to a fair share of conferences. Collision was the last one (made a video about it). Going to Saastr 2021 in September if any readers are in town 😁.
I’m a bit of an introvert, not a conversation starter, so actively networking at events is not my forte, but the truth is some investors attend, and if you are lucky, you can interact with them.
In my experience that doesn’t usually happen on those investor dating tables, or because they drop by your booth. It seems to happen more around happy hours and after parties. So do save some energy to attend those.
Worst case, you will meet other entrepreneurs like you at those events,
What you definitely don’t want to do is browse the attendee list for some celebrity investor or attendee, and they to cold pitch them as they walk off stage. Again, I have never seen that work, but please correct me if I’m wrong in the comments.
Some angel groups and small venture funds have a submit a deck form on their websites. I have applied to a couple and have had mixed experiences. None of them ended up investing, some of them did generate promising interactions and others were just a big waste of time.
The point is, if deck submissions are open, you should take advantage of it. We have an ever growing list of startup accelerators and funds who accept these ‘cold’ applications. Also a feature in Slidebean.
Remember, everything above this line is preferable. We are getting into the last resort section of this diagram. But Twitter is an option- and some of these tips apply to Clubhouse as well.
Startups Twitter is a small, close knit community. Many investors are constantly generating or participating in conversations and many even have their DMs open for cold pitching.
This is your way in: interacting, replying, quoting and retweeting. I have to confess it took me years to finally get onboard the Twitter train, I had to force the habit, but now I check Twitter regularly and it has led to some really valuable interactions. It’s the quickest way to reach me if, btw.
What you don’t want to do is just cold pitch people. Warm up the lead first. Make your name recognizable, ask questions, provide value in some way before pitching.
This could take weeks and months, by all means, so once again, it’s a last resort thing. However, if you want to fast track your way to it, make sure to check out the trend of the week section on our company forensics newsletter.
You should not cold email investors unless every single one of the previous alternatives has been exhausted. That’s months of work mind you, months!
The investor finder function we have on Slidebean often finds the email for the investor, but again, you should not touch that link until you’ve tried every single approach above.
If you have to, if you absolutely have to, here are some tips:
And that is truly everything I know about funding investors.