finding investors sweet spot
do your homework
Hey there,
Welcome to the new members on the list.
Let’s talk about investors’ sweet spot. Say you’ve already established the positioning your startup but you need to align it with what investors are looking for. How do you make sure that the investors you’re targeting are right for you?
You need to do a bit of research and look at the following:
Geography
Not all investors will fund startups from anywhere in the world - fact of the matter is that they have a specific mandate to invest in certain geographies and sectors.
Some will fund startups from one country only. Others will fund European startups and there’s definitely VCs backing companies from all over the world.
So, for example, if you’re a startup from Germany screening London-based investors, make sure they are capable and willing to invest in a German startup.
Vertical
If you evaluate a generalist investor (i.e. they invest in any kind of startup), check their portfolio and look for patterns from the industry distribution of the companies. If you’re screening a specialist investor, make sure that their interests include your startup’s vertical.
This kind of info is, or rather should be, usually stated on their website. Fact is that most of those are written in ambiguous terms, usually misleading, so your next best guess is from checking their marketing materials - i.e. blog posts, social media - this is how investors signal what they’re interested in. Always correlate with the track record - what kind of companies they funded before and what check sizes they wrote, see below.
Business model
Same reasoning applies for the business model. Some investors are mainly focused on B2B SAAS. Some only fund consumer business. Others are specialised in marketplaces. If they don’t state it upfront, the track record should be an indicator - if, for example, they have marketplaces in their portfolio and you’re building one, it’s likely that there’s familiar ground to explore with those investors.
Check size
Unless they state their check range upfront, you can deduct that from the size of the fund the investors have available. If the investors have a small fund (i.e. $10-50M), they will be able to accommodate a $25-100k check - that should be ideal for pre-seed or seed investment rounds.
If they have big funds, everything multiplies - they will likely be looking to write $1M or higher checks. That should accommodate later stage funding needs or early stage startups that are capital intensive (i.e. ecommerce, manufacturing etc).
Experience
Also useful to keep in mind is checking the background of the investors. If they come from a certain geography (i.e. a French guy based in London) they may be familiar and would be interested to help a French founder out. Alas, if their resume includes previous experience in a specific vertical you’re active in - that should be a strong signal of the sweet spot alignment to your startup.
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As a rule of thumb, you should do this kind of research for all the investors you put in your lead prospects. If you’re unsure about what you read on their materials, remember that actions trump words and your judgement is better off from their portfolio analysis.
Sometimes investors make exceptions from their sweet spot. But more often than not, great investors would build a brand around this intersection, as they would like to be top of mind for founders targeting this sweet spot. And that is also why they screen and actively look for such startups.
Not least important, keep in mind that if you don’t fit someone’s sweet spot, it doesn’t mean that you’re a bad investment or that the investor even thinks you’re offering a bad deal. But doing research before pitching the investors will save you a lot of time and frustration.
Guiding founders with this kind of work is what we do at Project Arrow - if you’re struggling with the fundraising process, check it out and give it a try.
Get feedback on your startup pitch
Are you a super early-stage startup looking to get some directional feedback on your company?
We’re doing an informal event exactly for that - you get feedback, advice and a chance to rehearse your pitch in a real life context. You will get a minute or two for sharing what your startup is up to (think elevator pitch) and get feedback from me - expect something along the lines “is it clear what you do?”; “you need those numbers when you pitch”; “do you know about those other startups in your space?”; “those investors may be interested in your industry”.
You can also participate by watching others, it's a great learning experience to hear what consistent themes come up.
Please note that while we’re trying to accommodate everybody, the number of spots is limited, save yours now by clicking the button from below.