A limited number of targeted & active investors — Club Deal 101
To start a Club Deal you need, quite obviously, investors. But not any type or any number of investors. While it might sound counterintuitive, having a large community of investors isn’t optimal and shouldn’t be the end goal. To build a great club, you need a limited number of active investors.
Selecting the right investors is key. Ultimately, you want to create an environment where investors are highly-involved in deal opportunities and where there is high-trust between investors and the Club Manager. To achieve that, you need to be selective in the way you choose investors and only invite a limited amount of investors to the Club. And so, before inviting investors to your Club you will need to spend time understanding their needs, what types of investments they’re interested in and see how that matches with your Club Deal goals.
By restricting access to the Club, you also create a feeling of exclusivity for your investors. They feel privileged to be part of the Club and they’re aware that they’re part of a curated list of investors that went through a thorough selection process. No one wants to feel like they’re on a large non-personal investors list and so this approach will only make them feel more engaged.
Having a limited number of investors join your Club Deal allows you to undertake careful thorough due diligence with each of them, to confirm that you share the same values, the same investment philosophy and most importantly it will allow you to have knowledge on their investment behavior and preferences. This way, you’ll be able to share only relevant opportunities that are more likely to trigger their interest.
It’s also important to keep in mind that several European countries limit the number of investors you can contact without an agreement from your local financial regulatory institution. It helps to be selective.
Engagement Is Key
The main objective is that your community quickly responds to your requests, and gives you hints to adjust your process and your opportunities. You can keep track of their activity via multiple KPIs: the number of deal they invest in, track if they open, read and click in your emails, etc. If they are not active, you can simply revoke their access. Obviously (and we can’t stress it enough), do not spam and oversolicitate them: you’ll break the relationship.
And of course, it is easier to engage your community when your investors have a frictionless experience via a dedicated tool. In Zenvest, admins have a simple way of tracking investor interest for a deal. It is called the “interest score” and it’s based on their behavior on a specific deal (the number of times they viewed the deal description, if they downloaded an attachment, opened and clicked on the invitation email etc). It allows admins to gauge the engagement of investors and helps investors commit to deals.
The eClub community
At eFounders, we have our own Club Deal, named eClub. It’s made up of a limited number of active investors. They can be classified in three main categories:
- Successful Entrepreneurs: they often have little to no time, a high trust in the club, a very high engagement rate and they target very early-stage projects.
- High Net Worth individual: they seek club deal opportunities as an alternative to traditional VCs. They tend to invest on their own thus need more support from the club admin and usually want to build a portfolio of 15 to 20 lines, with follow-ups in later rounds.
- Ultra-High Net Worth Individuals and Family Offices: they are more interested in later-stage investments (post Series B) and can deploy larger sums. They need time to assess opportunities and are particularly demanding on post-closing data (reporting and financials).
This typology is interesting as it covers the different investment stages of a new venture.
But it is also demanding since each category of investors has different investment interests. They require different types of information and so it is crucial to aptly manage their needs in order to retain their interest in future deals.
Key to the success of eClub, the eFounders Club Deal, are the rules that investors must follow:
There’s only a handful of rules, but they matter. As a Club Manager, you agree to share unique investment opportunities and sensitive information to random (but qualified) people and when investors get an opportunity, they know you need their attention. That’s why there needs to be high-trust between both parties.
In short, start small, grow on reputation
The success of a Club, similar to many financial operations, depends on your reputation and your past behavior. It takes a lot of time. Your ability to source and structure unique investment opportunities is key. But success brings success. Start with a few investors, get to know them, offer relevant opportunities and grow progressively.
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In the meantime, if you’d like to find out more about zenvest.com, please contact me at cyril@zenvest.com
