Tuesday, March 27, 2012

Cultivate Relationships With Potential Investors (Before You Need The Money)

One of the most difficult challenges an entrepreneur encounters when growing their business is understanding the right moment to both seek and then accept funding from investors. It's especially tough "because you need to have cultivated those relationships well in advance of when you need the money," said Eric Boggs, founder and CEO of Argyle Social, to an audience of more than 80 people gathered at the spring CAFÉ event at CED on Tuesday.

Boggs was joined by Bruce Boehm, a former investor at US Venture Partners, Jason Caplain, co-founder and general partner of Southern Capitol Ventures, and Chris Rogers, sales director at Juniper Networks (JNPR). 
 
In a discussion that centered around the relationship between entrepreneurs and their early investors, the panelists shared their experiences and their expertise in how to structure a deal. More importantly, the panelists hit three key "takeaway" points which demonstrate that the most important part of qualifying for seed or angel funding is the relationship between an entrepreneur and a potential investor. 


1. You must understand how you will be measured and how success is evaluated. Rogers, who built and grew a company and sold it to Juniper Networks, his current employer, continually stressed the importance of your performance metrics. Potential investors will look at almost every aspect of your business prior to making an investment, however, each investor may be looking for a different set of measurement criteria. This is largely based on their investment strategy, said Rogers, though it is also important to note that the health of your sales pipeline will always factor into an investor's decision. 

2. All of your prior relationships matter. It's simple. Those in your network already--whether they are fellow entrepreneurs who have sought funding, your legal team, a former advisor or professor, or a key figure at an entrepreneurial support organization--are your best mechanism for new connections to potential capital. "For anyone who sends cold emails," says Caplain, "Don't ever do that again. Ever. You always need a warm introduction." This is particularly true in the current investment market, stressed Caplain, so ask for introductions, and do it the right way.


3. Know the investors before you need funding. Recanting a personal experience, Boggs described his relationship with Bruce Boehm, who became an investor in Argyle Social once Boggs started seeking capital. Boggs built the relationship over a period of time (even before pitching the company). In recanting this experience, Boggs articulated his belief that investors, particularly angel investors, choose to invest in lines, not in dots. This is an investment philosophy first laid out by Mark Suster, and can essentially be summarized in a few key words: people will invest in other people in whom they have an interest and a prior relationship. Thus, meet your potential investors early.


These three simple tips can prepare you for success. Like any other business function, your funding strategy must be addressed on a regular occasion, perhaps a few hours a month. That way, when you need it, the relationships are established, you are ready to pitch your business, and you're able to articulate the core points of your business and provide more in-depth measurements to those potential investors who ask for it. 


Start today. We'll see you out there. 




CED CAFÉ, or Competitive Advantage through Fundamentals of Entrepreneurship, is a lunch series which provides entrepreneurs the opportunity to learn critical skills and understand important issues that will affect the success of their startup. CED Members attend free of charge. Looking for early connections to investors, or preparing to go through a fundraise? Venture Mentoring Service may be a good fit for you and your company.


Post written by Jason H. Parker, Associate Director of Marketing Communications and Digital Media.



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