How to Make a List of Target Investors
Finding investors is challenging, but if you want to raise funds for a startup this is an inevitable part of your journey as a founder. The first step is to build a list of target investors. These are the investors who have the most to offer your startup and the highest probability of investing.
Your target list should start with 50-100 potential investors who have a history of investing in startups like yours. If you pitch the wrong investors, you end up wasting time and losing momentum, so it’s important to consider your target investor list carefully. A shotgun approach to picking investors won’t yield the results you’re looking for—you need to find the right investors who are a good match for your business. Here are some of the ways you can narrow down your search:
Decide how much capital you need
You need to assess your immediate, short-term, and long-term growth needs. Investors will be expecting clear communication when it comes to the amount of startup funding you want to negotiate, so you need to understand your startup’s financial needs inside and out before you approach any investors.
Not only will having a specific number in mind help you make a better pitch-–it will also help you avoid headaches down the road. You don’t want to spend valuable time pitching investors who can’t or won’t provide you with the startup funding you need.
Research startups in your space
Spend some time researching your competitors and startups in your space and similar industries. Find out who invested in them. Investors usually won’t invest in competitive startups so if someone has invested in a competitor you might want to cross them off the list. If, on the other hand, an investor shows strong interest in your space, but hasn't invested in a direct competitor they probably should be on your list. For example, if you’re web3 founder launching a new crypto wallet, you might want to avoid investors that have invested in other wallets; however, investors that have done other crypto and web3 investment, but not in competing products would be much more likely to give you a look if they don’t already have crypto wallet company in their portfolio. You can look for investors that are currently showing interest in your industry on Crunchbase by looking up the startups in your space and who their investors are.
Research potential investors
After you make an initial list of potential investors, dig deeper. Spend some time researching their history on LinkedIn, their websites, and ask your network if they’ve worked with any of the investors on your list before and what their experiences were.
Here are a few key considerations you should investigate:
- How many startups like yours have they invested in?
- Are they currently invested in a competitor?
- At which fundraising stage do they typically invest?
- Did they recently make any investments (this will tell you if they have money to invest, known as dry powder)?
- Do you know anyone who could provide an introduction?
- Have they had any notable successful exits?
- What type of startup investors do I need?
By doing your homework and learning about each investor, you can weed out prospects who simply aren’t willing or able to offer what you need.
Get an introduction
As you’re choosing investors to target, keep in mind the value of introductions. You’ll improve your chances of getting a meeting with investors if you know someone relevant who can introduce you. Many if not most investors may be inaccessible to you entirely without a warm introduction. The ideal introduction would be from a founder the target investor has previously invested in or from another investor who has invested in your startup.
You should factor in your ability of getting a warm introduction when you are choosing investors for your target list.The best way to start doing this is to list founders that investors in your space have invested in and reach out to them. Many founders believe in helping other founders so make a soft ask for feedback and build rapport before you ask for the intro.
Finding the right investors for your startup will require you to research a lot of different investors, many of which may not end up on your target list. As you are compiling information about potential investors, keep yourself organized with a spreadsheet. Don’t underestimate how extensive your search might become.
Learn from an expert
Building a list of target investors can be an intimidating task for first-time startup founders. If you’re struggling to identify promising investors, you should know you’re not alone. There are many other founders who have gone through the same steps to make a target investor list who can offer startup advice. The life of a founder can be lonely unless you reach out for support and assistance when you need it. Connecting with a mentor is one of the best ways to keep your search for investors on the right track.