MaRS Library How to meet and engage an investor for your startup
Networking as a way to meet and engage investors
If you’re thinking about a business opportunity that will require investment, then attend networking events in your area to identify key members of the investor community and meet other entrepreneurs. It is never too early to approach potential investors and it may be easier to create an informal relationship when you’re not actively seeking investment for your startup.
Be creative in expanding your network. Attend events, meetings, dinners and speaker series where investors and entrepreneurs meet to make you and your business visible to this community.
Get an introduction to potential investors
Once you are ready to raise financing and have developed your target investor list, contact the investors you know directly. For those investors you do not know, get the best quality introduction you can from other sources:
- CEOs and founders of current and past investee companies—they are generally easier to reach directly than an investor, they can be an excellent way to get your business a referral to that investor and they may offer some insight into whether the investor would be a good prospect for your business
- Other investors who know and have worked with the target firm
- Other industry sector contacts—analysts, executives at large influential organizations and advisors
- Professional firms—law firms, accounting firms and consulting firms
- Neighbours, friends and family
- LinkedIn or other social networking tools—determine if there any indirect links between you and your target investor and request an introduction
Connecting with investors
To contact an investor for a meeting, send an email request, as it is quick and easy to forward around an investor firm or angel network. Your email should include an articulate elevator pitch telling the investor who you are and what you do. Attach a copy of your executive summary covering details of the technology, market and team to the email.
Investors want an opportunity to review some initial information about a company. They will use this information to determine whether the opportunity fits their basic investment criteria regarding sector, stage and geography. If the opportunity does not meet their criteria, then they will not waste your time or theirs with an in-person meeting.
Using capital raising agents or organizations
Agents and professional organizations provide capital raising services for startups. These organizations are usually compensated through a success fee that is calculated as a percentage of the investment round (ranging from two to ten percent). Some firms may require a monthly retainer as a guaranteed minimum payment amount for their services. The retainer is usually deducted from the success fee at the end of the engagement.
As with all your business decisions, do your research before engaging an agent. Check their references and evaluate their track record and reputation. Some investors welcome the referred leads from agents who have vetted and performed due diligence on an investment opportunity while others prefer to evaluate investment deal flow from direct sources. Early-stage investors, where round sizes are small, prefer to see all their capital used to build the technology and business model (and not used to pay an agent).
Angel investors (and why they might be different)
- An angel investor must be accredited. This means they can afford to lose all the money they invest. You’ll also need legal counsel to advise you on seeking investments directly from individuals.
- Aim for sophisticated angel investors with experience in investing and knowledge and expertise in your industry. They will help to build the business and be attractive co-investors for VC firms during later rounds of investment.
- A well-known angel or key member of an angel network can attract a flock of angels for your deal.
- Understand the investor’s motivation as they often have a double-bottom line—financial (from their after-tax personal savings) and a desire to pay back society by helping the next generation of entrepreneurs. They might even have a “triple” bottom line if the venture helps to solve a social, environmental or medical problem that resonates with the angel or their family.
- Understand their personal and business interests. Angels often make very personal decisions based on their level of connection with an entrepreneur.
Kawasaki, G. Garnering angels: Raising capital. Retrieved April 8, 2009.
Kawasaki, G. (2004). The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything. Toronto: Penguin Canada.
MaRS. It’s Negotiable: A Guide for Entrepreneurs. Retrieved April 8, 2009.
eHow. How to Get Introduced to Venture Capitalists. Retrieved April 8, 2009, from http://www.ehow.com/how_14396_introduced-venture-capitalists.html.
- What investors want in place when they invest in your startup.
- Purpose: What it is and why it’s important for your brand.
- Product strategy: Setting your strategic vision for product offerings.
- Marketing plan for your product launch.
- Convertible promissory note (convertible equity) funding documents: Sample templates for Ontario startups.