No matter what sport you play, positioning is everything. Hockey great Wayne Gretzky once gave this advice:
“Skate to where the puck is going to be, not where it has been.”
Just like sports, positioning is also important when setting your company up for investment. Too many startups lose out on investment capital – whether it’s from friends and family, angel investors or venture capitalists – because they haven’t positioned their firm well.
Yes, positioning your company for investment takes time and legwork, but when done well, it can set you up for success. If you’re looking to start an investment round, work on these five tactics before you send out your first email.
1. Do your homework.
This may seem like a no-brainer, but too many companies overlook this step when seeking capital. Be clear on who you are and what type of capital you need. Are you looking for startup capital, early-stage capital or growth capital? Before sending a pitch to a potential investor, make sure they’re even interested in companies at your stage of growth.
Investigate the personalities of the people you want to invest in your company. Alejandro Cremades, author of The Art of Startup Fundraising & Serial Entrepreneur, suggests this advice:
“Often overlooked but extremely pivotal is whether these investors are easy to get along with.”
If your investors aren’t a good fit for your company’s culture and brand, they may bring you more misery than help.
Not all investment companies are in an investing phase; they may be raising more capital themselves. Research the last time the investment firm funded a company, and find out how many startups they’ve funded in your sector. If an investment group hasn’t funded a company in six months or has never funded a company in your sector, move on to a different option. After all, your outreach should focus on quality—not quantity.
2. Use your network.
Finding investors is about knowing the right people (or knowing the people who know the right people). If you’re truly interested in growing your business, tap into your network. In fact, many investment companies don’t even accept cold pitches and instead require a referral. Talk to your people: You don’t have to know the guy at the top; you just need to know someone who can get your foot in the door with the investors you’re interested in.
3. Find a mentor.
No matter what stage of growth your company is in, there’s always someone out there who knows more than you do. To position your startup for investment, you need someone else’s brain to pick—someone who knows “where the puck is going to be.”
Think about who you know or who you’d like to know with expertise in your industry or in building a company from the ground up. Before you even think about pitching your company to an investor, pitch it to a mentor.
4. Be prepared.
Before you send an email or set up a meeting with potential investors, be ready. Polish your pitch. Make sure you can sum up your idea in a minute or less. Bob Rice, managing partner at Tangent Capital, suggests:
“You need to be able to get your point across within a minute while you’ve got someone’s attention … before they start to wander. It’s almost like a headline in a newspaper.”
Make sure you also know what investment terms you want. Investors may want to negotiate the terms, but having a set idea of what you’d like to get and how much of the company you want to give up gives everyone a starting point for negotiations.
Know your competition. Don’t go into an investor meeting thinking you have an original idea. Make sure you know about your competition and are prepared to say why you’re different.
5. Be honest and flexible.
Don’t try to hide the difficult stuff. If investing in your company brings a certain amount of risk, be honest about that risk. If you had difficulty in a certain stage of production of your prototype, own up to it. The investing relationship is all about trust, and if investors don’t think they can trust you, they won’t invest in your company.
Bringing in investors also means bringing in new energy and new ideas to your company. Be prepared to be flexible in your plans as investors offer different ideas and ways of doing business. Look at it as an opportunity to learn and grow.
Positioning your startup for investment is about preparation and legwork. Do these five things, and you’ll have no trouble positioning yourself where the puck (or money) is going to be.
Marshall Dougherty is a partner of Target Hill Capital, a venture capital firm dedicated to building scalable growth companies and investment opportunities backed by unmatched due diligence to exceed VC success rates and investor IRR. Share your thoughts on Facebook, Twitter or on LinkedIn.