Investors are not running a charity. The reason why investors make investments is that they believe they will make a profit. For them, it is a business transaction, that is researched heavily and thoroughly thought through. This further means that investors want to know the business they are bankrolling really well and minimize their risk as much as possible. Thus, knocking randomly on their digital doors to ask for cash is not the best way to get funded fast. In fact, contacting investors only when your company needs capital will elongate the search needlessly.
Still, this is the usual practice for many startups because there is an inherent fear of asking for money too early; as if contacting investors automatically means you are asking them to immediately part with cash.
After speaking with multiple investors, The Startup Station recommends a far more successful way to secure funding faster by building relationships with investors three to six months before you actually need it. We also discuss it in the corresponding video.
Investors Are Valuable Startup Resources, Not Just Sources of Capital
Connections make the world go ‘round. Money and connections are often intertwined and therefore, conversations with investors do not always have to revolve around monetary transactions. There is a mutually satisfying relationship between startup entrepreneurs and investors that goes far beyond the signing of a check.
Startups have something to offer. Investors have money, yes, but they also have connections and experience. Often, those can be invaluable, especially to the new and upcoming startup.
How to Build Relationships With Investors
After you identify investors interested in your product, begin building rapport with them by allowing them to watch you consistently execute goals, successfully adapt to market feedback, and evolve as a company.
Throughout this time, you can demonstrate that you have a disciplined approach to decision-making and that you can handle adversity and uncertainty. After all, the average lifespan of a startup investment is three to seven years. That is a long time to invest in someone, especially if you do not have some proof of their abilities and work ethic. Establishing rapport with these investors will help lay a foundation of their trust in your competence.
Get Funding Fast When You Need It Most
Once trust has been established, when your startup does need money, the conversation will be much easier. Instead of knocking on some random person’s door, you now have the luxury of talking to the investors as partners. This also means you have an idea of how exactly to ask them for funding.
Plus, the investor now knows your professional value. He or she has watched you grow, prosper, and expand into a startup that you are proud of. This allows the discussion to shift from purely theoretical and unsubstantiated to a trusted professional exchange.
Establishing trust is an investment of time and resources. Yet, it is essential to create the connections necessary to receive funding when your startup needs it. Course # 5 on Fundraising strategy and financing vehicles for early-stage startups addresses how to conduct investor search in more detail.
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