Entrepreneur’s Guide to Developing and Diligencing Your Target Investor List
Many entrepreneurs I’ve worked with over the years seem to struggle to put together a targeted list of active, relevant potential investors. Sometimes they don’t even have a target list — they’ve been reaching out opportunistically or have fielded inbound interest only — and other times it’s because there simply hasn’t been enough time to do it right.
I wrote this for any entrepreneur who has emailed an investor they thought would be interested, only to get an email back saying “this is not a fit for us.”
I spend a lot of time studying and building relationships with investors our Springboard entrepreneurs might want to meet, so I’ve put together my fair share of investor target lists.
Here are some best practices and tools I’ve used, which I’ve organized into a kind of blueprint for systematically qualifying sources of funding and developing a target list of 30–40 potential investors. This isn’t comprehensive so I welcome feedback on additional strategies and tools that have helped you find success.
Step 1: Broadly consider the sources of funding that are aligned with your vision to grow the company.
Many entrepreneurs, when they make the decision to raise funding, will default to seeking out angel or VC money. Before you do that, make sure to consider other, alternative sources: strategic investors, non-diliutive government funding, foundations, family offices, or funds with novel investment theses like Indie.vc (which invests in revenue-focused startups) or social impact missions.
You’re looking for investors that align with your vision for your company. For some, equity fundraising isn’t the right approach. We’ve developed a quick online test to help you narrow your options.
Step 2: Generate a large list of potential investors
Start by casting a wide net. Identify those that invest in your industry, broadly defined. These are the investors who bring a value-add beyond the cash: connections and experience. Think high level at first — “life sciences”, “healthcare”, “enterprise tech” at this point rather than granular like “aging care”, “women’s health”, “data & analytics”.
There is greater transparency around institutional sources of funding — VCs, angel groups, strategic investors — than others sources like family offices (which often prefer privacy), high net worth individuals (ditto), and non-dilutive funding (grant opportunities, foundations).
But peer entrepreneurs in your industry, ideally ones who have been in your shoes within the last few years, are the perfect guides to navigate those paths.
To identify relevant angels and VCs, there are a number of tools and data sources available to fundraising entrepreneurs and more that keep on coming.
Here are a few you’ll want to check out:
- Angellist — Free
- Quora — Free (Search for “List of investors in X”)
- LinkedIn — Free (Search “Venture Capital & Private Equity” industry)
- Crunchbase Pro — $29/mo
- CB Insights — $1599/mo
- Pitchbook — Neogitable (~$15–20K/year)
- Mattermark — $200–500/mo (Have heard they offer discounted pricing for pre-Series B companies)
And here is a compilation of investors and other resources for women-led companies: The Complete Ecosystem Supporting Women-Led Tech Companies.
Step 3: Cut that large list down to your target investor list
Now you want to cut down the list to 20–30 target firms where you fall into their sweet spot. Use a systematic method of triaging your initial list.
Dive into that investor’s data on Mattermark, CB Insights, Angellist, or one of the other tools. Search for them on The Funded, an anonymous review website of investors. Look at the portfolio pages on each investor’s site and any articles they’ve written. Ask trusted advisors or peers if they have insights on which on your list they think are the best fit.
As you collect all this new data, here are some of the qualities you’ll want to consider as you triage the list into High, Medium, and Low degree of fit.
- Subsector Focus
What thematic areas of focus is the investor looking at? Remember to go deep, as there are levels of specificity within industries. For example: Healthcare > Digital Health > Infrastructure.
- Stage Focus
Does the investor focus on the size of investment you’re open to seeking
- Location Focus
Does the investor invest only in specific geographic areas or have a demonstrated preference for a particular geographic area?
- Year of Fund in Its Lifespan
Is the investor actively investing? VC funds will typically stop making new investments at year 5 of a 10-year fund. Depending on where the fund is within the lifespan there will be certain pressures or motivations. ADD IMAGE Source: 500 Startups
- Cultural fit
Have they expressed an appreciation for diversity of thought? (See the Ultimate Guide to Finding Women Investors). Does the investor offer more than just cash? How involved or not to they tend to be in the company’s in which they invest?
Step 4: Getting access to your wish list
Circulate your target list again to a few trusted people to give you a reality check. Ask them if there there any obvious ones you missed, or ones you’ve included that they think would not be interested and why. See if they can make a warm intro to anyone on the list.
Check LinkedIn for mutual connections to partners or a senior executive at one of their portfolio companies. Remember the importance of targeting the right partner at the fund (e.g. if they operate in tech and life sciences). Also, before you jump in and ask for an introduction, ask your contact for their insights first.
Make it easy for your mutual connection to make the intro by tailoring it and showing you’ve done your homework on WHY you think it is a good fit. Your mutual connections needs to “sell” you to their contact. If it’s an executive at one of the fund’s portfolio companies then that person must “sell” you to a partner at the fund. If it’s a partner, they’ll still have to “sell” you to the other partners. See here for more on the Right Way to Get Introduced to an Investor.
Build the relationship over time. There is a real art to this. Consider setting up Google Alerts for your target investors. Follow them on Twitter and sign up for Nuzzel so you can see things they’ve been reading. Strive to be top of mind by periodically having a value-added touchpoint with them.
I won’t pretend I’m the only one who has ever written on this subject. Here are a few others to devour:
- How to Develop Your Fundraising Strategy by Mark Suster
- How Do I Perform Due Diligence on a VC? by Katherine Hague
- What is the Proper Way to Do Due Diligence on a VC Firm? on Quora
- How to Identify and Target an Investor for Your Tech Startup from MaRS
- Seven Ways to Pre-Screen Your Investors from Foundersuite