How To Find Investors for Your Pre-Seed Round Without a Network
Part 4 of the “How to Raise a Pre-Seed Round” Series
This week we’re going to get into Part 4 of the “How to Raise a Pre-Seed Round” Series: How To Find Investors for Your Pre-Seed Round Without a Network
How to Raise a Pre-Seed Round Series
📈 Part 4: How to Find More Investors (this post)
Once you get over the feedback hump with your deck and you’ve closed your first check, it’s time to step on the gas and find more investors. You should pursue as many investors simultaneously as possible. This creates interest in the round and pushes investors over “Wait-and-See Hill”.
At the end of the day, it is the interest of other investors that forces investors to act because there is limited room in the raise. Do not take the single-shot approach where you court one or two ‘great’ investors. Closing a round is about a truckload of lead bullets, not a single silver bullet. Fill your funnel with as many investors as possible and pursue them until they invest or don’t.
Here’s how to find those investors.
How to find investors that are most likely to invest
The people that are most likely to invest in your company often have three things. They trust you (relationship), they invest the amount of money you need (stage), and they are interested in what you’re doing (industry). The greater degree of overlap, the greater the odds they’ll invest. I like to think of each of these variables as circles.
Relationship circle: They know you or trust someone who knows you. The more overlap there is with your backgrounds the better (same school, same past employer, same city, similar interests, etc).
Stage circle: They invest in companies at the pre-seed stage.
Industry circle: They invest in companies similar to yours (broadly defined), but they haven’t invested in direct competitors.
Starting in the stage circle
The relationship circle is the most important place to start, but we went over that in the previous post. For the stage circle, you’re looking for two groups of people: People who invest their own money (ie Angels) and people who invest other people’s money (ie Micro VCs, Rolling Funds, etc).
Angel investors are wealthy individuals investing their own money. I generally think of them in two categories, Professionals and Non-Professionals. I would avoid Angel Groups as they often have long processes and rarely actually invest in true pre-seed startups from what I’ve seen.
Professional Angels are people who regularly invest in startups. They generally know what they are doing and may even advertise on their social media profiles that they are an angel investor as a way to get deal flow. You can find them in places like AngelList and Signal. Simply searching Twitter and LinkedIn for “angel investor” can be a good starting point.
Founders who have had successful exits or have been able to cash out part of their equity are often active angel investors. Look for founders in your industry or something you have in common with and reach out to them, especially if they have “investor” in their bio on Twitter or LinkedIn.
Non-Professional Angels are wealthy people who haven’t invested in startups before. Retired executives in your industry or network are a great source for Non-Professional Angels. You often need to educate them a bit more, but they can be valuable partners. These people are a bit harder to find since they may not have angel invested before. In general, these are often in your network because they aren’t active investors.
Micro VCs, Family Offices and Rolling Funds
These are professional investors investing other people’s money. People investing their own money (Angels) and people investing other people’s money have similar, but often different motivations. People investing other people’s money have a timeline for a return and act accordingly. First and foremost, they are investing for a return.
People investing their own money (Angels) still want a return, but are often making their decision for other reasons as well. For example, they have a passion for the problem you’re solving or connect with you on a personal level. It’s important to understand these differences, especially with Angels. Take the time to learn about what’s driving their investment decisions.
Here is an example of how to find a good Micro VC, but you can use a similar process for Syndicates, Rolling Funds, Solo Capitalists, Family Offices, etc.
First, what are Micro VCs?
Micro VCs are a growing trend and a great initial source of capital. Usually, anything under a $100M fund is a Micro VC, but often they are under $50M. Often a firm will start as a Micro VC for initial funds but, if they are successful, they will start raising larger and larger funds that move them out of the “pre-seed” stage.
How to find Micro VCs
Search Crunchbase or Signal for VCs that have raised funds under $50M. There are also lists of Micro VCs floating around on the internet if you Google them. If you end up with a massive list, I usually narrow it down to firms that are in your region. Generally, the closer the firm is to you, the more likely they are to invest, however, COVID has decreased the importance of geography.
Once you identify a firm, look for companies like yours in their portfolio. Check out their website to see if you’re a good match for their thesis. If you think the firm could be a good fit, search for the firm and partners on LinkedIn or Twitter. See if you share any mutual connections to find a good intro path.
If you think the firm is still a good fit, but have no intros, send a cold email, LinkedIn, or Twitter message. It’s not preferred, but at this stage, they expect cold emails. The below quote is from a great YC video on how to meet investors. I would also recommend using the Hemingway App or Grammarly for all of your writing, especially for emails to investors.
I’m building a marketplace for home cleaners. I have a novel approach to this — all of the cleaners are robots. We’ve launched, and are just starting to grow.
I think you’d be a great investor for us because of your experience with Homejoy. I think we’ve solved unit economics and reliability. Can we discuss this for 15 minutes? Happy to email if that’s better for you.
A word of caution on “Early Stage” VCs
To the first-time founder, Early Stage VC sounds like your friend. But often, “Early Stage” means Seed or Series A investments. They are looking for tens of thousands of dollars in monthly revenue for most startups, a far cry from most pre-seed startups. Generally, if their average fund is >$50M, but especially >$100M, it probably isn’t a good fit for your first round.
From my limited experience, some partners will write personal checks, but most firms discourage it. They don’t want to have conflict of interest issues with their current or future portfolio. But, intros from larger VCs to Micro VCs often aren’t a bad thing, as long as you’re too early for the investor making the intro.
Starting in the industry circle
After the stage circle comes the industry circle. The industry circle is last because I think it is the most difficult place to start, but it can work.
Using industry categories
First, identify what industries you’d put your company into. For example, SaaS, Marketplace, FinTech, or Hospitality. Don’t limit yourself to one industry either; think about what you’re doing broadly. For example, a Pet Insurance company could be in InsurTech, Pets, and Consumer, to name a few.
Once you have some industries identified, search Crunchbase for investors interested in those industries (Crunchbase calls them categories). See if you have any connections on LinkedIn or Twitter to those investors for an intro.
Using similar companies
Another strategy is to identify similar companies, but not direct competitors. Successful companies that are similar to yours are best. Look at who they raised their first money from and see if they could be a good fit. See if you have any connections on LinkedIn or Twitter to the founders of those companies. If you do, ask for an intro. If you don’t send them a cold email to see if they’d be willing to set up a call to get feedback on your deck. One of the best intros you can get to an investor is from a founder of a successful company they invested in.
Remember, the most likely people to invest in your company often have three things:
They trust you (relationship)
They invest the amount of money you need (stage)
They are interested in what you’re doing (industry)
The greater degree of overlap, the greater the odds they’ll invest!
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