For a startup, securing funding typically involves building and leveraging a strong investor network. In fact, nearly 70% of venture capital deals come from connections in the investor’s network, according to a survey from Harvard Business Review.[1] How can founders build a strong network of connections, earn trust and nurture those relationships, and potentially leverage those connections for fundraising? In this blog, learn more about building a strong investor network and some key considerations for startup networking efforts.

Building a Strong Investor Network

Many venture capital deals start as a warm introduction through a mutual connection. Therefore, startups may want to work on building their investor network before and in between fundraising efforts. The following is a basic outline of how a founder might begin building an investor network.

Identifying and Engaging Investors

First, founders may want to identify potential investors by using targeted research.

Conduct Investor Research

One starting spot is to identify investors whose goals align with your startup’s stage, sector, and technology. Use commercial databases like Crunchbase and PitchBook to analyze portfolios and investment theses. Investors with experience in the startup’s business model or market may be able to provide beneficial insight in addition to funding. Attending industry events can also serve as a good spot to learn about and meet active investors and begin conversations.

Execute Targeted Outreach

Another way to identify investors is by taking a look into existing connections’ networks. A warm introduction from mutual contacts might help to jumpstart a conversation. If a direct introduction is not available, online platforms like LinkedIn can serve as a contact point. By commenting on relevant content and sharing industry insights, a founder can establish credibility before initiating “lukewarm” contact.

Building Trust

Once initial connections have been formed with potential investors, a founder may want to begin building trust and nurturing the relationship before making the ask for capital.

Relationship Development

There may be a period that feels somewhat like a first date. Where are you from? What’s your family like? How are the kids doing? However, building deep, genuine relationships takes time and can help build trust before the ever-touchy asking for money phase. Think about building an investor network like making friends and professional connections. While small talk can seem time consuming and counterproductive, developing a relationship can turn into a longer term investor-founder relationship.

Maintain Transparent Communication

Just like relationship building, it can be beneficial to practice give and take. Proactive transparency on how the company is doing, both good and bad, can also help build trust with investors. Sharing both progress and challenges regularly and establishing a rhythm for company updates can demonstrate discipline and allow potential investors to assess execution capability.

Continue the Relationship

Just because an investor doesn’t commit to a check in a startup’s current round, that doesn’t mean the investor will never invest. Building a strong investor network involves long term relationships. An investment now might mean a follow up investment later. A lack of investment now could still lead to a future investment. Continuing relationships with any potential investors may help the startup in the future.

Final Thoughts

A strong investor network can be beneficial for a founder, potentially leading to investments, future connections, partnerships, mentors, and other resources. However, building a strong investor network involves finding the right people, building trust, nurturing relationships, and continuing on the conversation over a long period of time. By building a strong investor network, a startup can leverage this network to help raise capital.

Is your startup ready to raise its next round of funding? Apply today to raise capital with MicroVentures!

Want to learn more about growing a startup? Check out the following MicroVentures blogs to learn more:

• Deciding How Much to Raise
• From Prototype to Product-Market Fit: Seed vs Series A Funding
• Keeping a Startup Alive Between Funding Rounds
• Finding Funding: Bootstrapping vs Fundraising

 

[1] https://hbr.org/2021/03/how-venture-capitalists-make-decisions

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.