The Smarter Startup

Identifying the Ideal Investor for Your Startup

Creating an ideal investor profile can help narrow your search, save time, and get you funding to move your startup toward a successful exit.

A few years ago, I met a pre-seed founder, Angie, with an excellent MVP, a handful of customers, and the infectious passion and drive that excites me. Angie had domain expertise and a well-thought-out HR product that targeted large teams at Fortune 500 companies. She was customer-obsessed, spending hours on calls listening to their needs, making sure she bent over backward with the right features to solve their problems and create value. When asked who her ideal customer is – she described her customer succinctly. She spent the time creating customer personas and her ideal customer profile, best practices to help achieve startup scale.

But when it came time for Angie to raise her seed, she was baffled. She knocked on several investors’ doors through her network, only to find that they were uninterested, already had a similar company in their portfolio, or didn’t get what her product even did.

After weeks of wasted meetings, she felt like the next round was harder than she thought. Maybe even impossible.

When it comes to seeking investment, top founders use the same best practice as they do for their product. Creating an ideal investor profile can help narrow your search, save time, and ultimately get you a strategic check to help your startup with a successful exit.

The Different Types of Startup Investors

Just like founders, startup investors come in different shapes and sizes.

1. Generalists

Generalist Investors often come from a traditional finance background and will have spent time on Wall Street, M&A transactions, Private Equity, even commodities. These investors will have a knack for pattern recognition in large data sets and usually are looking for specific metrics they believe show traction. They have more of an “algorithm” that starts with a founding team that likely has an advantage to solve their problem, followed by CAC to LTV ratios, subscriber numbers, ACV, etc. Many investors outside Silicon Valley tend to be generalists.

Examples of the Generalist Investor

  • Rick Smith, Crosscut Ventures
  • John Frankel, ff Ventures
  • Matt McCall, Pritzker Group

2. Former Operators

A second type of investor is the former Operator. This is an investor who has “been there, done that” and can offer very specific insights, benchmarks, and best practices for the industry in which they spent their career. They may be focused on conversion ratio benchmarks and ask more pointed questions around customer acquisition. These investors often feel like a strategic advantage because they can potentially provide additional insights, open new markets, and give coaching and important feedback.

Neither investor is better than the other, but each will have their own worldview of how they see your company. Be aware that an operator has an intuitive understanding of their industry and will be able to see potential risks and barriers that may or may not exist based on their experience.

Examples of the Former Operator

  • Sara Adler, Wave Capital – Marketplaces (AirBnB Mafia, Facebook, DropBox)
  • Scott Beechuck, Norwest Ventures – SaaS Sales Software (Salesforce)
  • Tess Hatch, Bessemer Partners – Space Tech (SpaceX)
  • Jessica Karr, Coyote Ventures – (Impossible Foods)

3. Corporate Investors

Another group of investors that can also be helpful is corporate investors. These are arms of large corporations that invest in startups with a long-term aim of keeping potential M&A in-house.

Examples of Corporate Investors

  • Coinbase Ventures
  • Salesforce Ventures

Matching The Investor Thesis

The investor “thesis” is what a Venture Capitalist traditionally sells to their Limited Partners, i.e., their investors. Many VCs believe that a certain type of company with a certain type of founder will perform multiples in ROI. Your job as a founder is to match your company to an investor thesis, and that’s done by understanding their investor’s criteria.

Investor criteria usually includes:

  • Stage Focus: When and how much does this investor like to invest? Finding out average check size, preferred stage
  • Vertical Preference
  • Current Portfolio
  • Dry Powder and Deal Velocity

Generalists will typically focus on benchmarks, utilizing their pattern recognition and EQ to navigate which teams are likely to execute on their product and have enough traction to hit their metrics.

Operators will have a more defined thesis based on their background.

Examples of Investor Thesis from the above examples:

  • Sara Adler, Wave Capital: Wave is a seed-stage venture firm specializing in marketplaces.
  • Jessica Karr, Coyote Ventures: Coyote Ventures is an early-stage fund investing in women’s health and wellness, founded by partners who are scientists turned entrepreneurs turned investors. Coyote Ventures was founded with the north star of improving women’s lives and recognizing the explosion in innovations in women’s health and wellness—a $1T+ market opportunity—propelled by the increase of women in finance and STEM.

Working Backwards

Brainstorming companies that may be potential acquirers is a good way to generate a list of potential investors. A sales tool may want to focus on an investor from Salesforce (like Scott Beechuck of Norwest ventures). A social tool that integrates with Twitter may want to look for former Twitter employees. Angie brainstormed several HR companies and found former employees from Linkedin, Oracle, and Cornerstone OnDemand.

Developing Your List

You should be able to narrow your list to 20-50 likely investors. For Burkland clients, reach out to your CFO, and we can provide a list of 50 investors using the criteria above. Use our Investor Tracking tool to keep track of who your best targets are and how often to reach out. Ultimately this list is a funnel.

We recommend tracking the following:

  • Investor basic information
  • Contact information
  • Who could introduce you to the investor
  • Investment Thesis
  • Contact Attempts
  • Competitive companies they’ve invested in (these you may want to avoid)

See: A Living List of Series A Investors from Freestyle Capital

Once you have your list, you will want to consider eliminating anyone whose thesis isn’t aligned with your product and anyone who’s already invested in a competitor. Doing your research on investor thesis will save you a ton of time and energy with a simple web search. Most VC’s have done interviews and stated on LinkedIn their investment preferences.

Getting the Introduction

A warm introduction is always ideal. Most VCs have either a Linkedin or Twitter account. Make sure you connect with the Burkland BD team to see if they are connected to any of the investors on your list. Most VC’s believe that the best deal flow comes from other founders in their portfolio company, so getting an intro from another founder is ideal.

Once you see a shared connection, ask your connection to make a simple introduction. I find this message works the best:

Hi (connection): How are you? You may know my company is in the middle of a raise, and I noticed you’re connected. Do you mind making an intro? I’ve included a template below:

Hi (investor name), I’d like to introduce you to (Founder Name), who has a fast-growing SaaS startup with over 2,000 customers. I know you like series A SaaS companies, and I thought I’d make an intro. Thanks.

The key to the warm reach out is to a) make it easy for your connection to make the intro and b) include enough information to pique the interest of the VC.

Cold Reach Out

The cold reach out can be done via email, Linkedin, or Twitter. I recommend a bit of all three, with persistence.

If you go for the cold reach out, be very clear and specific on where you are in your traction (ARR, Customers, LTV, etc.), and ask the investor what metrics they typically like at your stage. Asking this question will be key in getting the investor to engage and giving you key information about what they might be interested in.

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Burkland provides startups with fundraising assistance. Our BD team can help create a targeted list of investors and facilitate introductions to our investor partners. Reach out to us to learn more about how we can help your startup or portfolio company.