4 Ways to Get Investors to Invest

A series of objectives entrepreneurs can accomplish to increase their chances of raising startup capital.

Amir Emadi
Nov 26, 2019 · 5 min read

One of the biggest challenges for entrepreneurs is getting investment for their startup. Although both entrepreneurs and investors contribute to this challenge, I won’t focus on one or the other. I will not talk to you from an investor’s perspective alone or from an entrepreneur’s perspective alone.

It’s important for you to understand these challenges through a lens that focuses on the dynamic relationship between the entrepreneur and the investor. The revelations that come out of it, and the thought process developed as a result of studying it, can be enlightening

We’ll take an action-oriented approach. The first step?

Avoid Dumb Money

Avoiding dumb money will save your life. Sounds like an exaggeration. Let me tell you why it’s not.

First, what is dumb money?

Dumb money refers to an investor who has money to invest in a startup but no knowledge, experience, or connections in that startup’s product, market, or business model.

The relationship between the entrepreneur and investor will start with reservations.

It then becomes shaky every time there’s a moment of uncertainty, which in an early stage startup is literally every second.

The investor asks irrelevant questions because of his ignorance.

The entrepreneur becomes concerned about giving answers that will scare the investor.

Trust breaks. Transparency fades. Conflict ensues.

This is a drain on both parties’ time, energy, and on the entrepreneur’s ability to raise future capital.

So how do you avoid dumb money?

Find Smart Money

It’s not actually random. You and this other person connect on common interests. You’ve lived different lives but you have a “coming to minds” (so to speak) because those different paths led you to the same experiences. It could also be because you traveled similar paths.

Now imagine that person’s experience led him to wealth, which he intends to invest. Since you’re currently raising capital, this seems to be a good fit. Right?

What makes this person “smart money” has nothing to do with the fact that he has money and your company needs it.

Rather, it has everything to do with the fact that he understands your background, your market, and your business. He’s smart money because he can connect you with customers, partners, and other investors in your space.

There’s alignment. And there’s a deliberate process to create alignment.

How do you find smart money?

Take a Sales Approach

Of course, the prospect of getting funding could be daunting to you. So, to give you some confidence, let’s break the first steps down:

First, you need to build a profile of your ideal investors.

Do the investors have experience with my kind of solution, market, or business model? Have they had exits in this space?

The next series of questions should focus on whether their current portfolio includes competitors or if you would fit nicely in it. Then determine if you have a mutual friend that has a great relationship with the investor. (Always go with warm intros, particularly from people who’ve made that investor money).

Second, use databases to build a list of ideal investors.

They’ll also let you build lists starting with the other profiling criteria, such as markets, exit targets, and product types. It’s just a different angle of attack.

The resulting list might be really large at first. The more you narrow your criteria to what aligns with your startup, the better your chances of having that magical connection with an investor.

Third, start scheduling 15 min calls with them.

These pieces of advice overlook the value investors bring. Yes of course you need to have made some sort of traction and have a good business model in mind. However, startup investors can help you with all that stuff; they should.

Plus, when you build a profile, you’ll know at what stage an investor gets involved.

Later stage? Put him later in your timeline.

What do you do if they’re not ready yet?

Keep Tabs

But you have to keep your company at the top of mind with the right investors at all times. Why? You’re competing against hundreds of other startups a month.

No joke, when I was sourcing deals for investors, I vetted at least 100 companies a month. If I didn’t maintain a structure internally, I would have vetted much more than that. Once startups learned about us, more of them wanted to engage us.

What does that tell you?

If you don’t set up some sort of structure to communicate your progress and keep investors engaged, you’ll lose them altogether.

Investors play a fine line between FOMO (fear of missing out) and herd mentality. They want to be the first to jump in the pool, but will do so after they have proof that the waters aren’t infested.

Conclusion

If entrepreneurs don’t have a measured approach in contacting, attracting, and maintaining relationships with investors, they amplify this “pool dance.”

The dynamic can make the process of raising capital very difficult for companies.

And when entrepreneurs do raise capital without following those steps, they’ll think it’s luck. It’s not. Getting funding for your startup is a deliberate effort of finding alignment with someone and creating those magical conversations.

It’s not luck. Magic is not random.

The Startup

Get smarter at building your thing. Join The Startup’s +724K followers.

Amir Emadi

Written by

Serial drone entrepreneur and co-founder of Toofon, an aerial logistics startup spun out of Caltech. All social: @amirmemadi

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +724K followers.

Amir Emadi

Written by

Serial drone entrepreneur and co-founder of Toofon, an aerial logistics startup spun out of Caltech. All social: @amirmemadi

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +724K followers.

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store