Ask a random sample of founders who have raised venture capital, and we guarantee every one of them will have a story about how they raised money from someone they wish they hadn’t, another on the time they pitched their consumer web startup to a healthcare VC, and the pivotal cup of coffee where someone took the time to mentor them on how to be deliberate about targeting investors who had the best odds of adding value to their specific company. This section will walk you through the ins and outs of how repeat founders create, research, filter, and manage a list of target investors.
The tension between a message like, “You’re about to spend years of your life building a company with this person, so you should really tread carefully when choosing who to take money from” and “beggars can’t be choosers” is very real. When founders are new to raising money, they often fall in the trap of believing money will make all of the problems disappear. After all, when you’re paying your out of your own bank account, a $50K check from just about anyone starts to look pretty attractive. The thing is, whether it’s three months or three years after you take someone’s money, you’re going to find yourself sitting across from each of your investors to say, “I fucked up.” When that moment comes, there’s only one thing you want to hear: “It’s okay. We’ll figure this out together.” The more carefully you choose who to go into business with, the more confident you can be that those people will have your back when things get tough.
On top of committing to a critical long-term business relationship, not all investors invest in the kind of business you’re building. Some investors only do late-stage deals, some only do healthcare, some only do SaaS, and some are terrific coaches for first-time founders.
Lists of top investors can be a helpful place to start (Forbes’ “The Midas List” and CB Insights’ “100 Top Venture Capitalists” are two good ones), but you should treat them like an actor might treat a list of top directors and producers. If you’re going to be in the industry, it can’t hurt to know their names, but that doesn’t mean you’re going to want to work with them.
Top investor lists, while a good place to start, can’t be your only source of data. Winnowing all the investors out there into a target list is about gathering the right data to determine who among the field might be a good fit for you and your company, now and in the future. The research necessary to get to this list can feel daunting. There isn’t a single affordable resource for founders to look up names of investors, where they work, what they’ve invested in, and what they’re interested in. Some data sources are more complete than others, so you’re likely to cobble together data on people and firms from quite a few websites. You’d be wise to enlist the help of whatever network you have, friends and family included (visit Appendix A: Networking and Mentorship, to learn how to do this without being annoying). Finally, you have to figure out a way to sustain all this information in a single list.
Learning how to build a list of target investors will invariably increase your chances of closing a deal, and the skills involved apply to other parts of your business as well, like hiring and sales, which, as a founder, you’re likely to be involved in. (These efforts will be familiar to anyone with a background in those fields.) We’ve pulled together tools, techniques, and tips from experienced founders to help you find your future investors, no matter where you’re starting from.
This section will cover five major concepts:
Practical tips for discovering and researching investors.
How to structure the information you collect.
Why it’s important to build a big list up front.
How to come up with a set of criteria to decide which investors are worth spending time with vs. which ones aren’t.
Organizing your research process with modern tools.
You might have a target shortlist—the people you really, really want to make a deal with—of about 15–20 investors (who could be or individual investors at a firm, depending on your stage). But you’ll have a longer target list, too, of investors you’re interested in speaking with and learning more about. Having a longlist is especially important for early- and seed-stage companies; not all of your targets will turn into meetings, and not all your meetings will turn into deals.
important It’s not uncommon for founders to speak with more than 50 or even over 100 investors before closing a single round of funding. In 2017, First Round Capital reported that one out of four early-stage founders pitched more than 20 investors during their last fundraising round.* Startup advisor Brendan Baker analyzed one company’s seed round where the founders met with 173 separate people,* and even Jeff Bezos took 60 meetings to get 20 investors for his first $1M.* In 2018 in the U.S. alone, there were 1,047 active venture firms, managing 1,884 funds.* It takes a lot of research and filtering to generate a list of realistic targets. Relationship management strategies are the smartest way to keep track of all your research and data as you develop your list, and ultimately track these relationships from first stages of research, to qualifying investors, to meetings, and on through to deals.
Definition Relationship management (or customer relationship management (CRM)) is a business strategy and supporting software that concentrates on maintaining relationships with key partners, including customers, by organizing contact, communication, and usage data into an actionable format. Companies typically license a pre-built CRM platform, which may be customizable to companies’ specific needs.
Relationship management matters because of Dunbar’s number, the popular theory that most humans can only maintain relationships with 100–250 people at a time. If you work in an industry that demands a wide network, you’re likely to forget to follow up, lose someone’s name, and fail to meet the right people. CRM helps us make up for this natural deficiency with external systems we can build and improve upon to meet our needs.
Good relationship management is a combination of the people involved (you and your team); the researching, organizing, and contacting process (which you and your team build, adhere to, and iterate on); and the tools used to do so—people, process, tools. The sticky note on your desk that says “call Mom” is a really basic form of relationship management. More advanced relationship management is usually digital, and we’ll get to that shortly.
…fundraising is a sales process. The buyer is shopping for equity in startups and the seller is looking for cash in exchange for equity and shared governing control of his or her company.Mark Suster, *, Upfront Ventures
If you’ve ever worked in sales, this process will feel familiar. But founders have a tendency to over-optimize and reinvent the wheel everywhere they go. Before you go build your own sales process from scratch, you should seriously consider the fact that an entire industry—an entire field of practice—is devoted to building good sales methodology. Nearly every founder or startup salesperson will at some point in their career try to create a homegrown system that they believe will help them save time or be more efficient. We strongly recommend applying best practices here and focusing your innovative energies elsewhere in your business. Best practices for great salespeople involve creating a list of prospects, reducing that list to leads, and then further reducing that list into qualified leads. Here’s how these terms apply when we’re fundraising:
Prospect. Any plausible investor.
Lead. Any investor whom you have a hunch might be interested in your company.
Qualified lead. Any investor you have confirmed will invest at your stage, in your industry, in the country in which you are headquartered, and at the desired check size.
Now you’ll gather data into a that can take you from prospects to qualified leads.
A funnel is a diagram that represents the process of qualification, in which you start with a wide pool of potential investors and narrow it down to those worth reaching out to.
Some people prefer to characterize the levels of the funnel as “stages.” Others refer to the funnel as a “pipeline.” No matter what word you use, the whole idea is about moving a contact through a process toward a close—not everyone you start with will come out the other side as an investor, new hire, or customer.
Remember that all the data you collect is meant to help you save time and focus your efforts. If you’re raising $500K and you find an investor whose average check size is $3M, then you know you don’t have to meet with that investor (at least for this round). This is how you begin to narrow your prospects into leads. The purpose of initial data collection and then the process of qualifying investors is to move a smaller number of investors through your funnel to end up with a shortlist you’ll contact first.
To get to 15–20 realistic target investors, you’re going to need to “fill the top of the .” This means getting a much larger initial list—usually around 50, but up to 100—that you can then narrow down.
To fill the top of the , you just need to find the names of a lot of different investors. Don’t worry yet about who you’ll have a chance of meeting or who’s right for your company. Once you have a list of names, you’ll be able to start figuring out how to get an introduction to each person on the list.
Who you know. The first step is to begin recording the names of anyor individual venture capitalists you know personally. If you’re most people, you probably don’t know any—that’s fine!
Who you know of. Next, record the names of angels, VCs, or venture capital firms you’ve heard of before. Record as many of them as you can in whatever tool you decided to adopt for your CRM.
Due diligence. Next, you’re going to need to begin researching relevant investors on the web. We’ll share standard search queries and several online resources that can help you get started.
Ask for help. It can be tempting here to fire off emails to friends or people in your network who you think may know a bunch of investors, asking them something like, “Hey, do you know any investors?” But when you’re asking for help, it’s important to make it easy to say yes.
Definition In sales parlance, the likely or plausible buyer of a product, a service, part of a company, or something else is called a sales lead or lead. Leads are people who are associated with companies, not companies themselves. These terms may also refer not to the person but to the set of data points that make them a likely or plausible buyer, though this can also be called lead data.
confusion Note that sales leads are different from (investors who lead a round), though both can also be simply called leads.
You’ll use lead data to begin moving likely investors down the weak leads” (who might not be totally disqualified, but will be tougher to close—at least in this round). from the wider set of prospects at the top of the funnel. To evaluate who among your prospects has the potential to be a fully qualified investor (that is, someone you think would be a great fit for your company and who will be among the first investors you reach out to), there are several pieces of lead data you’ll collect on each of them. This will help you differentiate between the “good leads” (those who can be considered to have a high likelihood of closing) from the “
important Note that you probably won’t be able to dig up all the lead data you need online. We’ll cover this later, but starting your in-person pitches by asking questions to make sure you have all of these data or to verify the data you have are correct is a great way to ensure your meeting goes well. This kind of diligence will show your credibility as a careful planner and indicate that you can afford to be selective about the investment you take.
Data you can definitely find online with Google searches, on firm websites, LinkedIn, and databases like Crunchbase and AngelList:
Data you may be able to find online, but may have to wait for the first meeting to get:
important You may find investors who invest in different industries, at different stages, or only invest in countries you don’t live in. It’s tempting to think this stuff isn’t relevant to you and not record it, but you’re missing a big opportunity. Later down the road, you may be raising a bigger round and therefore need a list of investors at a later stage. Or a friend of yours might ask if you know of anyone who invests in security companies. If it’s easy for you to record data in the moment, and something looks interesting but not right for you right now, it may be worth recording it anyway. But don’t spend more time than you need to on investors you know won’t be moving through the .
The next step in the is determining which of the will make your target shortlist of qualified investors.
Definition Qualification is the process of applying a set of criteria to a set of entities to determine whether they fit a defined profile. In the context of for fundraising, a set of criteria is developed to determine whether a potential investor fits the fundraiser’s ideal investor profile.
You will be able to collect some of these data points through online research; others you should request from investors once you meet them. You may not be able to get all the information you need to qualify a lead before meeting with them, but it’s a good idea to try your best to do so, as it will maximize your chances of getting a meeting with that investor if you do. This list should help with some of the obvious, fixed factors, and also get you to think about the less obvious factors determined by your personal preferences.
Industry and domain expertise. The benefit of a VC who has worked in your industry is that they are more likely to understand what you’re doing and ask the detailed questions that will actually help you.*
Competitive investments. Know whether they have invested in any competitors. Keep in mind that many investors prefer to be conservative when ruling out companies for investment if they think they might compete with a company in their portfolio—imagine how it would feel to learn that your investor was backing a new competitor!
Location. This data point has a couple facets. First, where is the investor located? If the investor is likely to take a , either you or they will have to travel for quarterly board meetings if you aren’t in the same city. While the trend toward video-based meetings is increasing, building a company is a gauntlet of a challenge and you’re likely to want to get face-to-face time with your investors.
danger Signaling risk. Be wary of VC firms that typically invest at Series A or later when you’re raising a seed round. Seed money from big VC firms, including from seed programs at these firms, comes with two major risks, and not the fun kind. First, these firms often give seed funding just to buy options on later rounds. If they don’t go on to invest in Series A, that scares off other investors by signaling something is wrong with your company. And if the VC does follow on, you have less opportunity to compete for better offers in your Series A. Standard VCs are also known to push too much money at seed-stage startups, driving up valuations and putting companies in the disadvantaged position of having to raise flat or later on. Chris Dixon has an excellent series of posts on this topic:
Fund Size. Just like fund size can have implications for signaling, it is also likely to affect your relationship with your investors. For example, an investor will look at you very differently if they invest $1M in your company out of a $10M fund (10% of their capital) vs. out of a $1B fund (0.1% of their capital). This can work to your advantage or to your disadvantage. In the former scenario, an investor may not leave you alone because the success of their fund is pegged to your success as a company. Alternatively, they may get their hands dirty and be helpful because they’re so motivated. In the latter example, your investor may not pay much attention to you because their success is spread out across other, most likely larger, investments. On the other hand, they may leave you alone so you can focus on building your company.
Lead vs. follow. Some investors prefer to lead rounds, some say they lead rounds (just not yours), and others never lead rounds. Qualifying investors by lead vs. follow will allow you to prioritize your time in the right sequence. Don’t disqualify investors because they won’t lead, just note that and circle back to them once you have a .
The right person. At this stage in your research, focus on partners, not associates.* Partners make the decisions. Associates may be helpful in getting introduced to partners, however, and if you’re only able to get in touch with an associate, don’t write them off. Keep in mind, too, that many associates will one day be partners.
It’s essential that you pick the right partner for your company, because it’s hard to change from one partner to another once you’re locked in.* In First Round Capital’s 2018 State of Startups, 64% of surveyed founders listed “good character” as one of the “three most important criteria” for a ; and 52% listed “individual partner expertise.” (“Terms of the deal” topped the list, but not by much, at 68%.*)
Ultimately, you want buy-in from the whole team, so make a point of getting face time with as many people as you can at the firm.*
If, as part of the negotiation, an investor joins your, you could be signing up to work with that individual for upward of ten years. Whatever your personal system of values, we recommend you determine whether your potential investors share those values. If an investor is ruthless and you don’t believe in doing whatever it takes to succeed, you should question whether you’re going to make a good team.
Reputation. Does an investor have a reputation for being a tough negotiator? Are they known for being honest and helpful, or blunt and harsh? Are they particularly good at recruiting executives in your industry? Are they actually a really solid silent investor who will leave you alone so long as you send an update email occasionally? Do they think they’re the smartest person in Silicon Valley because they worked at an investment bank for three years and talked to the CEO of Uber once? Other founders and investors all tend to have opinions about who is pleasant to work with and who isn’t.
This kind of information is rarely shared publicly, given the risk of looking like a jerk by criticizing someone in public. Given that, you’ll need to find ways to have private conversations. Other founders are remarkably forthcoming when talking to other founders about their experiences with their investors. Additionally, any lawyer worth their salt will have worked with many of the partners in their city or region and in Silicon Valley. Ask your counsel who they would and wouldn’t recommend.
Just keep in mind that an investor one founder characterizes as “harsh” could be “forthright” to someone else,* so take all hearsay with a grain of salt and think seriously about what kinds of relationships you want to invest in.
As we discussed in Bias and Discrimination in Fundraising, talking with founders who have worked with investors on your list before can be a crucial step in sussing out patterns of behavior, like sexual harassment, that you really want to avoid.
Investor track record. Investor experience can vary dramatically. Evaluating the pros and cons of experience can be highly subjective, but that doesn’t mean it’s not worth examining.
Inexperienced investors at the beginning of their career have not seen many companies go through the tumultuous cycle of growth, downturn, successes, failures, acquisitions, and shutdowns. Given this, they may not have as much to offer in the boardroom—especially if they haven’t been an operator themselves. Less experienced investors may also have their judgement clouded by a desire to prove themselves. Conversely, a good investor new to the scene will realize they’re investing their career and reputation in your success, along with their firm’s money, which could mean they’ll work harder for you than someone with less to prove. There are new investors who are remarkably helpful and are willing to be hands-on (if you want them to be).
Other investors are at the tail end of their career. They may have seen many companies go from two or three people in a garage or apartment all the way past *. They’ve likely seen and suffered through more than their fair share of failures and disappointments. Their experience may be a helpful edge to guide you on your journey, but they may also over-apply lessons learned from past businesses to yours. If an investor made early investments in massively successful companies, like Amazon or Google, they may be willing to take more risk on your company, given that they may no longer be financially motivated. Occasionally, they can be out of touch with reality, spending their weekends racing expensive cars or making gut-wrenchingly tone-deaf comments, so it’s good to do your homework.
We recommend typing your investor’s name into Google with various phrases like “scandal,” “harassment,” or “ousts founders” to see if anything alarming comes up. We cover this in far more detail in Bias and Discrimination in Fundraising.
tradeoffs and then see if your leads typically do or do not take board seats. Many investors list current board seats on their LinkedIn or Crunchbase profiles, which can help you figure out their common practice or preference. preference. Do you want an investor who will take a board seat, or not? Carefully weigh the
Investors’ * It’s not a bad idea to ask investors who their investors are.* We talk a lot more about LPs and investors’ motivations in Understanding Venture Capital.. Investors’ investors, LPs, can sometimes bring trouble. Take, for example, the Saudi Arabian investor scandal of October 2018.
Activity. If the firm has not made an investment in the last year, or has not raised a fund in more than five years, the firm may be a “Zombie VC,“ no longer operating.
Numerous websites exist to assist founders in their search for the right investors. Even so, no single website or tool is comprehensive, complete, or entirely reliable on its own. Private companies and individual investors are not required to disclose investments, so data is limited to those who have deliberately opted for transparency.
One thing you’ll inevitably run into is how poor online data is for classifying what companies actually do—information you’ll need when you’re trying to find investors who invest in your space. People with pocket protectors call this classification “industry taxonomy.” Government agencies use a rigid structure of organizing and labeling business called the North American Industry Classification System (NAICS). But startups and venture capitalists tend to use more informal language when describing their companies, like “B2B” (business-to-business) and “media.”
The problem with this kind of linguistic elasticity is that a company selling software to nuclear power plants and a company selling CRM software can both be classified as B2B. Terms like “enterprise software” are used in different ways by different people.
Given the ambiguity, you would be wise to look skeptically at industry classifications of startups and investors’ areas of investment.
Each of these resources has strengths and weaknesses. Most overlap in some areas, but it’s helpful to get familiar with each one. No matter where you’re looking, there are a few standard research questions and tasks you can focus on:
Who has invested in companies in your industry?
Lists of investors sorted by industry.
Looking up companies you know for lists of their investors.
Once you’ve found investors who have invested in companies in your industry, look up their portfolios—on AngelList, Crunchbase, or their website if they have one—to see what other companies they’ve invested in; then look at those companies’ investor lists for investors you haven’t heard of.
Googling for “top [stage] investors in [industry].”
AngelList. AngelList started as a list of , but it’s much more than that today. In addition to listing investors, AngelList also offers a startup job board, and enables startups to indicate when they’re raising money. Founders can even complete an entire fundraising transaction with an investor online using AngelList. Some features on AngelList are paid, like their job board, but to access the other features you’ll just need to create a free account.
Crunchbase. One of the best free tools for researching investors’ portfolios of investments. They offer a searchable list with filters that costs a few hundred dollars a year. Crunchbase is great for looking up who has invested in companies you know or admire or that are similar in some way to yours.
Investor websites and blogs. Don’t forget about general searches to find investor portfolio pages, About pages, and blogs from the firm or the firm’s founders or partners.
Nfx Signal. Nfx is particularly helpful for the second research task listed above, creating lists of investors by industry.
Shai Goldman. A startup and venture community leader in New York City, Goldman keeps a running list in Google Sheets of below the $200M threshold. It’s a great resource for discovering relatively new funds you may not have heard about yet.
“Top investor” lists. Each year, several different companies publish lists of the “top investors.” Two that are updated annually are Forbes’ “The Midas List” and CB Insights’ “100 Top Venture Capitalists List.” Additionally, lists like the “VC 100,” based on data from 2014, from Entrepreneur.com and PitchBook can help you wrap your head around some of the major players in the industry. Here are a few more:
caution Take these lists with a grain of salt. While many profess to be based on data, their methodologies are always opaque, and industry insiders see them more as PR stunts to get clicks than canonical lists that represent true fund performance.
CB Insights. This resource costs between $4K and $20K a month.* But their primary customer is not founders who are looking to raise venture capital. Their customers are investors and companies who are looking for data on industry trends and harder-to-get data on companies they may be looking to invest in or buy.
PitchBook. PitchBook provides similar data to CB Insights and does not share their pricing publicly. It is rumored to be several thousand dollars a month.* That said, many who have used it or gotten access rave about how helpful it can be. If you can find a friend who has a login, buy them a cup of coffee and check out PitchBook to see if it might be worth the cost for you. They include data like fund size, dry powder (the amount of money in a fund that is uninvested), and what other companies in your space an investor has invested in.
contribute We plan to add more tools to this section—if you have any suggestions please let us know.
Firms like Kapor Capital and Backstage Capital focus their funding on underrepresented founders, and there are many more. Online resources exist to help connect founders to investors who work specifically with underrepresented teams:
The Founders for Change Diverse Investors List currently contains information on fund size, sector, stage, and diversity of 400 investment firms.
PitchBook offers a list of VC firms that invest in companies founded by women.
Crunchbase keeps a list of VC firms investing in companies led by women and minorities.
The Binders Project introduces women founders to investors.
In 2015, The Information started tracking diversity and information on diverse founders in the top 71 VC firms. They summarized the 2015 data and keep the “Future List” in a consistently updated Google Sheet. If your company is interested in seeking investment from diverse firms, or learning why you might want to, these resources can be very helpful.
contribute Please help! We welcome suggestions from readers of great resources to add to this section.
You’re going to have to collect a significant amount of data on at least 50 people at the top of the . If you’re collecting 5–10 data points per person, that’s 250–500 data points you need to keep track of. A paper record is not your best option for storing all of these data; that’s a lot to risk spilling coffee on. This is where the tools of can be really helpful.
Most CRM software is built for big organizations to help teams collaborate on deals or communicate sales numbers. The dominant CRM company, Salesforce, employs 30K people to build and sell its software.
For founders sourcing investors for an early-stage company, a tool like Salesforce would be overkill. To run a good fundraising process with , there are hundreds of possible tools you can use, and many are flexible—it’s just important that you have one. Whichever tool you use, you’ll want to add a column for “stage,” which should refer to your . We recommend keeping your stages simple, like “getting introduced,” “holding meetings,” “negotiations,” and “deal won” or “deal lost.” If you have more stages than that, you’re likely to end up not using them because of how tedious it is to update the records all the time.
Here are a few tools we recommend. (Holloway does not have deals with any of these companies.) All of these tools are recommended because you can create tables to put data and sort it depending on different variables.
Google Sheets. This is a free, web-based spreadsheet software service; it’s hard to go wrong with a basic spreadsheet. Titles of data points go in the first row, with all relevant data below it. The spreadsheets have sort and filter functions, and it’s easy to collaborate on them. If your team already all use Google Docs, this might be a good fit.
Airtable. If you’re familiar with spreadsheets, you’ll find that Airtable and spreadsheets have a lot in common. The differences, however, make it kind of a power tool. Airtable has a free edition that can get you pretty far, but can cost as much as $12 to $24 per month per person.*
In Airtable, you can create one tab with a list of contacts (names, emails, and so on). In another tab, you can create a list of VC firms. Then, you can associate multiple contacts with one VC firm, as you’re likely to interact with more than one person at each firm. Airtable also makes it easy to create statuses in each table, so you can easily move certain investors through your.
We’ve created a lightweight template on Airtable Universe which you can make a copy of and use free of charge here.
Notion. Notion is a flexible tool for storing shared company knowledge like an internal company wiki, but it also has tables that function a lot like Airtable. We also use Notion at Holloway, as a daily workspace for a lot of different tasks and tooling. Notion has a free edition, but can cost as much as $4 to $16 a month per person.*
Streak CRM. Streak is a CRM for Gmail users. Some people swear by it, and they even have a page devoted to using their tool for fundraising.* Streak has a free edition, but can cost as much as $59 to $129 a month per person.*
Affinity. A CRM optimized for VCs and founders, Affinity has a lot of fields for data by default that you’d expect when fundraising. Affinity does not list their pricing publicly.