Working as an Investment Analyst is both an exciting and sometimes grueling process. On the one hand, you get to see hundreds of new ideas come across your desk every day. On the other side, you need to hunt every day for the right investor who likes your idea and is willing to back it. I have done both and am happy to share a few perspectives from both sides of the table for the startup community.
- The Ecosystem:
The Start-up ecosystem is growing as many new funds enter the market. As a former analyst for one of these funds, it was often very time-consuming to process applications from companies that did not meet our investment criteria. Even with automated triage, it takes considerable time and effort and is frustrating for applicants as well. It may be helpful for funds to brand their focus very clearly and for capital fund seekers to zero in on the exact target funds that they are looking for. In addition, offering a referral service from the industry could be helpful to aid this matchmaking process. A strong belief when I worked at the NBIF was to do our best to help all companies even if they did not fit our investment thesis. Whether this was through referrals to other programs, or funding partners.
2. Empathy:
Start-up companies seeking funding are often at their incubation phase where they are learning the ropes of building a business. Raising capital is a stressful process. While early-stage fund administrators try their best to be mindful of this, the experience can be frustrating on both ends. Compassion, patience, and most importantly empathy can go a long way in relationship-building with founders. This approach fuels innovation and trust between parties. Fund managers often struggle to get strategic, insightful updates from founders. Empathetic investors are often able to create better relationships with founders and in return have a much stronger insight on the company. This is important as these insights provide the ability for investors to aid in resolving problems, or potentially see problems before they arise.
3. Transparency:
Certain funds are very transparent about the focus of their start-up ecosystem support. It could be life science, AI, deep tech, natural resources, bio-medical devices, or research to name a few. Transparency can give capital managers a real head start on developing their short-list of possible investors. Being focused and prepared is so important at this critical early stage where funding is so important. Often it is not until the second or third email, or even an investment pitch that we can find out about the fit and sometimes even though they may believe in the idea/ company it is outside their scope.
4. The Challenge is real:
From a fund manager’s perspective, I always imagined the struggle and hard work that companies put into raising capital; however, until you experience the process yourself you never truly understand. From prospecting, constantly creating new iterations of pitch decks, financial projections, data rooms to countless meetings, the need to push forward can be daunting. The best thing a founder can do is to be as prepared as possible, seek mentoring opportunities, participate in an incubator, and seek guidance from those who have previously raised funding. The better prepared someone can be the less they should struggle.
5. Getting to a “no” quickly:
As a founder, it is better to get to a no quickly. Dragging out the process is not good for either party. If you do not plan on investing, please inform the founders quickly. If a founder changes his mind or has found funds elsewhere, please inform the other potential investors. However, a no does not have to be the end. It is sometimes good to leave the door open and the relationship in good standing as the future may change the investment opportunity down the road.
6. The warm intro:
There was a time when raising capital was very much a relationship-based exercise. Today technology has changed this and has opened the world to potential relationships not possible before. While this innovation is terrific, on occasion a warm introduction can be very helpful. As an ecosystem we need to find balance as AI and technology continue to become more involved in day-to-day business. best ideas, solutions, and companies can get left behind as the automated gatekeepers do not let them through the door.
Author: Brett O’Donnell-Stairs