When it comes to fundraising, we like to think of it as similar to a traditional sales and marketing funnel for a B2B enterprise business. In its simplest form, a traditional sales & marketing process can be broken into 3 steps:
Attracting and adding qualified leads to your top of the funnel on a regular basis.
Nurturing and moving the leads from through the funnel with the goal of closing them as a customer. (aka get them into a buying process)
Serving customers and creating a great experience until they become evangelists or promoters.
You can easily translate the 3 steps above into a similar funnel for fundraising:
Filling the top of your funnel with qualified potential investors. These investors generally come from cold outreach, warm introductions, or inbound interest. You want to make sure these fit your “ideal investor persona” — right sector, stage, geography, check size, etc.
Nurturing and moving investors through your funnel. While you may not be actively trying to close new investors and add capital you should constantly be working the top of your funnel. Staying fresh on the mind of potential investors 365 days a year using traditional marketing tactics will pay dividends when it’s time to pull the string on a new round of capital. Pro tip: send them a lite version of your quarterly investor update.
Building relationships and communicating with your current investors. Customer success is key to maintaining a strong relationship with customers once they reach the bottom of the funnel. The same can be said for your investor funnel. As a founder, one of the first places to look for capital is current investors. The easiest way to have a strong “customer success” function with your current investors to have strong and predictable communication, generally by way of investor updates.
So how do investor updates and your “customer success” function fit into a fundraise?
We have found companies that regularly send investor updates double their chances of raising follow-on funding. By sending a quick update on a monthly basis you will stay top-of-mind with your investors. Let’s say a founder has 2 founders raising capital. Company A has a healthy growth rate and has been sending regular updates vs Company B that has been growing slightly more than Company A and has left the investors in the dark, who does the investor back?
Most likely Company/Founder A because they’ve demonstrated they are an active and engaged founder who values what her or his stakeholders bring to the table. Sometimes a current investor may not want to invest in a future round for whatever reason which brings us to our next point.
The startup and VC space is a tight-knit community. A potential investor has to find as many data points as possible to build conviction around a potential investment. One of the first places a new investor will look to for guidance will be your current investors. They will want to know about your relationship and communication with investors. If you’ve been transparent and reliable that will be a major bonus with potential investors. If you’ve been lackluster with communication that could be a breaking point.
If a current investor is not joining in on the next round, that will be a major question area for a new investor. You need to work with your current investors to have a gameplan for when this comes up during a fundraise. If you’ve built a strong relationship, this should be no problem.
Regardless if your current investors are investing in the next round, they should be your ultimate evangelist.
Sometimes an investor is not ready to write a check but has interest. Just like the sales funnel mentioned above, these are “marketing leads” that you can nurture until they are ready to invest.
By sending over a quick email on a monthly basis to potential investors you’ll be able to build a relationship and pique their interest when it comes time to fundraise.
How exactly do you keep potential investors engaged? We have found it best to send out a short update on the state of the business and industry. Share a promising metric or two showing strong growth in the business and any significant wins/improvements. If possible, address any concerns with the industry, team, product, etc. that you have discussed in the past with numbers. Hundreds of emails land in investor’s inboxes so be sure to include a quick snippet of what your company does and any personal notes.
By committing to future fundraising efforts now, you will save countless hours when you are ready down the road.
On top of the added boost during a fundraise, investor updates can bring other benefits to you as a founder and your startup. Regular investor updates are key in keeping your investors engaged in your business so that they can provide assistance in their respective areas of expertise. They are also a sign of an active and engaged entrepreneur who values what her or his stakeholders bring to the table. Perhaps most importantly, consistent investor updates help stop inbound and asynchronous requests and give you time back to focus on building your company.
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