The 4 Essential Facts About Raising Impact Capital

As an impact investment consultant, I know the one thing that almost all impact founders need is greater access to impact investors. Every month, I come across numerous ventures seeking the same thing: access to impact investors at scale. So what is really standing in the way of SDG-aligned ventures accessing impact capital?

1. Cold Outreach Doesn’t Work

‘Cold outreach’ means applying to investors that don’t know you — which means they don’t know if you’re balanced, competent, or trustworthy.

Since most investors now publish explicit guidance demanding all strangers apply for investment exclusively via their website, first-time founders can be forgiven for believing that submitting applications in this way is genuinely productive.

The truth unfortunately is that it isn’t — in 99% of cases, cold outreach is nothing more than a very effective way to waste weeks of precious time and exacerbate your funding issues. According to Andreessen Horowitz, of 3,000 applications they receive each year, only 6% get looked at seriously, and less than 1% receive funding. Many other VCs produce similar numbers. More generally, cold outreach is well established to produce positive outcome percentages in the low single digits — and that’s regardless of the type of investor targeted.

Leaving aside the fact that cold outreach is generic, impersonal and prevents you from standing out, it's important to understand just how busy investors are — and to visualize the sheer volume of ventures that fly across their desks each day. A good VC, for instance, is vetting around 60 projects per week amongst the hundreds of decks they receive. Moreover, there are excellent reasons why:

“81% of angel investors prefer to invest in startups with which they have a personal connection.” (Ernst and Young)

…and why…

“90% of VCs say that they would be more likely to invest in a startup if it came via a trusted referral.” (NVCA)

If your organization received 3,000 applications, 300 of which had been personally recommended by your network of trusted professionals (such as lenders, advisors, financiers and bankers), which 300 ventures do you think you would evaluate first? It’s a simple case of using reasonable logic to minimize risk and wasted time.

In the end, avoiding ‘cold outreach’ is really about recognizing that, no matter how amazing your venture is, in the face of overwhelming competition, you have an inherent trust and credibility issue because ‘cold’ investors simply do not know you. Meanwhile, cold outreach lacks the trust-building process that typically occurs through ‘trusted referrals’ or ‘warm introductions’.

2. Nebulous Intro Requests Are Borderline Offensive

Another thing that founders often try is reaching out to the above-referenced introducers (the lenders, advisors, financiers, and bankers of the world) to ask:

“Do you know ‘anyone’ that might invest in my venture?”

This approach also suffers from extremely low response rates because, inherent in this question is the incorrect presumption that professionals have the time and inclination to review your business materials, and the relevant expertise in your industry vertical to ascertain your viability, feasibility and readiness — and— will be willing to spend the time to scour their network for undefined persons, and with no certainty of compensation. To highly trained professionals, this approach is simply too vague and nebulous and implies an unquantifiable drain on their time and resources.

3. Your 2nd-Degree Network Is Your Answer

So if…

“Investors are 20 times more likely to invest in a company that was introduced to them by a mutual connection” (Harvard Business Review)

and if…

“Startups with warm introductions were 16 times more likely to successfully raise funding than those without” (AngelList)

how can founders earn themselves large numbers of warm referrals in a way that is effortless for their introducer connections? The answer lies in your so-called ‘second-degree’ network.

Your ‘first-degree’ network is your immediate network of contacts containing people you already know. Each person in your first-degree network has their own network, meaning if those 1,000 people each have their network of 1,000, that gives you a reach of 1,000,000 second-degree contacts to evaluate. Therefore, your ‘second-degree network’ contains an extraordinary number of professionals that are currently sitting just beyond your reach.

But not for long!

Harvesting this social capital is simply a case of formulating the discipline and software stack to identify the perfect investors in your second-degree network, and then identifying who (in your first-degree network) are the critical connecting parties. All that is required then is to reach out to a specific first-degree connection and say

“Would you be so kind as to introduce me to Joanna Smith at XYZ Capital?”

After all, they already know you, they want the kudos, and the request should only take them 3 minutes to execute. This is a radically different request that requires minimal time. Your first-degree connection is fairly likely to respond: “Yes absolutely, let me do that tomorrow for you”.

So why doesn’t everyone just do this for themselves? Well, because the execution of this strategy is significantly more complicated than it seems. Let’s look at the numbers to understand why.

4. Keeping On Top Of Hundreds of Parallel Conversations Is Beyond Most People’s Capacity

This is what Impact Angel does, and if you were to retain us to do it, a typical campaign will involve 2,000 separate requests for introductions over the course of a 3-month retainer. On average this results in 840 emails opened, 240 responses, and approximately 80 meetings scheduled with warmly-referred investors. That’s roughly 5–10 warm referrals delivered to your venture's CEO every single week. Strong ventures can expect around 20 of those 100 warm investors to proceed to due diligence.

This outreach program takes approximately 30 hours of human labor per week (the normal capital-raising time commitment that your venture CEO would be undertaking without us) and is driven by numerous technical activities related to network analysis, relationship management, and response rate augmentation.

Not surprisingly our clients are typically:

1. Scale-up CEOs who cannot spare 6 months of 30 hours per week to manage an overwhelming number of external conversations.
2. Companies who lack the expertise or internal workforce to handle world-class financial services outreach.
3. Early-stage investors who — for whatever reason — are looking for an exit and need follow-on investors lining up.

Are you an impact investor or impactful founder with an authentic social/environmental mission? Do you need access to early-stage or follow-on investors at scale? Perhaps you need a stronger financial model or support to reach professional investment readiness? I can provide even more support if you visit me at:

www.ImpactAngel.org | Impact Angel on LinkTree

Build investor networks, raise capital, and communicate authentically with angels, VC and family offices. Understand risk factors, fundraising best practices and how to maximize the probability of positive outcomes.