Q: What is the best way to locate the right angel investor or venture capitalists?
A: Finding the right investors is really important. It's kind of like marriage. A great spouse makes for a great life, while a bad spouse could cause a lifetime of misery or an ugly divorce.
In finding the right investor, you're looking for a great, life-long partner and someone you can count on in good times and bad. So, chemistry is critical.
If you check the box on chemistry, you will want to find investors that will add bench strength to the management team. That is, investors with domain expertise -- either through prior investments or operational experience -- or investors with access to additional sources of capital that can further fuel your growth. The best investors will be able to advise you on strategy and help with introductions to potential customers, partners or key hires.
With that in mind, how do you go about identifying and targeting potential investors? Let’s start with angels. Angel investors can be hard to find but with a little bit of research you can typically locate individual investors who are interested in your business vertical or in supporting entrepreneurs in your community. Sites like Quora, CB Insights or AngelList are often useful. For example, you may query Quora with “the most active ecommerce angel investors.” Look for investors who made early bets in companies that created new categories or otherwise had a real point of differentiation. That's usually a sign of insight and vision, not to mention courage to avoid just the "me too" investments.
In terms of accessing angels, the most common method is still via personal introduction. Scan your network for common contacts to ask for a referral. Talk to fellow entrepreneurs or startup-service providers to see if they may be able to make an introduction. Go to startup related events in your community to build your network in this area. LinkedIn and Twitter are also common ways to reach out to investors. While the hit rate is likely lower than with a personal introduction, more than a few companies have been funded by engaging and impressing an investor over social media. Another avenue to consider is angel groups in your community. Angel groups have a more structured pitch and investment review process and provide access to broad group of investors. Angel groups can often take a bit of time to make an investment decision, so keep that in mind when pursing this option.
When assessing angel investors, you’ll want to ask questions about their most recent investments, what they typically provide to companies in addition to capital, their expectation of CEOs and how involved to they like to be in the company, among other things. All of these questions can help you evaluate whether you and the investor are aligned and if it would potentially be a good partnership over the long haul.
Finding venture capital investors can be a less opaque process but the same principles apply. You’ll want to find investors who have domain expertise and have portfolio companies that are complementary to yours. You’ll want to gather as much information as possible about which venture funds are active in your business vertical and, more granularly, which partners at the funds made the investments in those deals. Secondly, you’ll want to look at the size of the fund and the size of its typical investment. Again, online resources such as CB Insights, Mattermark and CrunchBase are useful tools for gathering much of this information. Once you’ve identified, you’ll similarly want to leverage your personal network to find a personal referral.
And remember, if you're working with the right legal team, they are often the best gatekeepers when it comes to introducing you to venture and angel capital and can open many doors for you.