So you’re raising investment and no one is getting back to you? You know you have a great investment proposition and you just want to get in front of more investors and have the chance to convince them that your business is the next big thing. But the market response has been… cold!
Let’s look at the top 5 reasons why investors might not be getting back to you.
All VCs and Angel syndicates have certain mandates that they follow which outline what type of companies they invest in. This could be anything from Deep Tech to Environmentally sustainable start-ups helping to achieve the UN’s SDG goals. With the mandate, investors are guided by it and invest in the companies which are addressing that industry. So for example a VC with an environmentally friendly/sustainable mandate would definitely not have interest in someone pitching them a petroleum start-up.
It is important to do your research and to find out who the investors you are reaching out to are and what type of start-ups they invest in. Once you can clarify they invest in your field, your chances of getting a response have dramatically increased.
Additionally, within larger VCs, different Investment Managers may be looking for opportunities in different parts of that mandate. So, if you know you’ve done your research into the VC, but you aren’t hearing back, make sure you research which contact is best to reach out to.
While there are VCs who have multi-stage funds and have the ability to deploy capital from Pre-seed right up to growth rounds they are few and far between. Most VCs focus on a specific stage in the life cycle of a start-up. For example, Forward Partners focuses on early-stage start-ups and has an investment range of £300k to £2 million. In line with their focus on early-stage start-ups they would not be interested in setting up a meeting with a company that is looking to raise £20m as it is nearing an IPO.
Your best bet to avoid making such a mistake is, again, to research and make yourself familiar with the investment amounts your target VCs are investing. Start by creating a list (preferably in excel) that you can use to track the VCs that you want to approach. Step number one is to research VCs that invest in your sector, and in businesses at your stage. With this in mind, we have compiled a useful guide to over 90 UK based VC’s that you can filter specifically to your business criteria. Access the guide here.
You should also keep your eye on news channels like Sifted, TechNation, and TechCrunch to stay in the loop of the latest rounds of investment being deployed.
A warm introduction is defined as “an introduction from a known and trusted associate, a referral from a trusted individual”. The term “warm introduction” is common in investor circles in which investors will only deal with entrepreneurs introduced to them by way of a warm introduction.
As much as we hate to admit it, businesses with warm introductions are immediately given more importance and attention by investors, compared to cold outreach from unknown start-ups. In fact, you are 13x more likely to get investment if you have a warm introduction.
We know there is a whole heap of things wrong with this but that’s a discussion for another day! Networking is still of the utmost importance in the investor community, and sadly it is still a case of who you know as opposed to how good your product or service is.
A way to combat the warm intro barrier is to make sure you do everything you can to increase your network which could mean going to tech/sector events, attending workshops, and joining start-up founder/investor groups. By doing this consistently your network will increase and your chances of getting a warm intro to investors would rise also.
It can be surprising how valuable an event or free networking event can be to your fundraise. Our own founder, Helena Murphy, received her first £100k of investment simply by sitting next to the right person at a networking dinner!
Portfolio companies are companies that an investor has previously allocated capital. A lot of start-up founders use portfolio companies to gauge if there might be interest in investing in companies in a similar space. This can be a great way to evaluate the appetite for an investor in the sector you are working in, but it can come with a risk. The disadvantage of this is that if you see a company that has a very similar solution to a very similar problem as you and has been invested in by a VC/Angel syndicate, the probability is that they will not invest in your start-up.
But why though? Everything seems to align and they have invested in a similar company… The reason is that an investor might be of the opinion that the similarities are too close and that you could be a competitor/ take market share from their portfolio company and investing in your start-up would be detrimental to their current investment.
Finally, let’s take a moment and reflect on what information you are delivering to an investor.
Is your product/service compelling enough to convince them to invest a sizeable amount of capital into your start-up? Venture Capital investors see 1000s if not 10,000s of pitch decks a year from founders coming up with exciting solutions to major pain points. So what makes your start-up special? It may be that you are not delivering the story in a compelling enough manner.
Before putting all the blame on investors, take the time to review your proposal and pitch deck. Are you highlighting the core narrative of your business and maximising the size of the opportunity for an investor? Have you asked for peer feedback?
In early-stage fundraising, the team is just as important as the solution you are building for example; if you have a previously exited founder who had sold a company for £50m that would greatly increase your investment potential even before investors know what problem you are trying to solve. The solution you are building, is it built on use cases and research? Have you conducted pilot testing and what were the results? Did the results help you come up with the solution you have now? And is the pain point you are aiming to solve a big enough problem that VCs see it as being investable?
The questions above are ones that you as a start-up founder or aspiring founder should ask yourself before reaching out to investors. If you aren’t getting any responses from investors it may be because there has not been enough planning and researching into the problem and solution you are creating.
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