Investor Relations for Post-Seed Startups
When founders are raising their seed rounds, they try to meet with as many investors as possible -- a sound strategy for raising money. However, after those seed rounds close, most founders are unsure about how to allocate time to new investor relationships. Should they start reaching out to Series A investors even though a Series A is over a year away? Should they accept meeting requests from VCs they've never talked to before? If they do meet with new investors, what should such meetings be about? This post will address some of the most common questions about meeting with investors when you're not fundraising.
Should you meet with investors when you're not fundraising?
Yes. Each meeting is a valuable learning opportunity. Things you might discover include:
- What kind of insights does the investor have about your business?
- What does the investor like about your plans? What are their top concerns?
- What kind of companies is the investor looking to fund?
- Do you and the investor have a good dynamic? Would you potentially like working together?
The sole caveat to this advice is that after you raise a seed round, it's prudent to spend a few months focused exclusively on building and recruiting. However, once you think you're 6-9 months away from another round of fundraising, it's sensible to start doing occasional investor meetings.
Which investors should you talk to?
Mix it up. Here are some of the different categories of investors that you could talk to:
- Investors with deep experience in your vertical. For example, if you're building an on-demand legal advice marketplace, you might talk to investors who have worked with other LegalTech startups.
- Investors who have a deep understanding of your business model. For example, if your business model requires a city-by-city rollout, talk to a few investors who have worked with companies that also grew one city at a time.
- Investors who know your target customers. For example, if you're building analytics solutions and your first target market is ecommerce companies, then talk to investors who work with ecommerce companies to better understand those companies' needs and structures.
- Investors with a perspective that resonates with you. This could be an investor who has interesting insights on product design, or leveraging data, or marketing strategies.
- Investors with no experience with what you're doing. Their concerns and feedback will help you tailor your pitch to audiences that are unfamiliar with your area of focus.
How often should you talk to investors?
Investor feedback is valuable, but recruiting, sales, and building a great product are more valuable. When you're not fundraising, allocating 1% or 2% of your time to talking with investors is sensible. Allocating >5% of your time is not. Take a few investor meetings a month (if you want to), but not much more than that. This means that over 6 months, you might talk to 10-20 investors.
How frequently should you reach out to any single investor?
If you're not fundraising, you should aim for meeting with any specific investor once, maybe twice, before going out to raise more money. The first time you talk to an investor, you'll each learn a lot about each other. You'll learn about what the investor is looking for when evaluating companies, their focus areas, and what they would like to see your company accomplish to fit their investment criteria. Taking more than one or two meetings to learn these things is a waste of time for both sides.
A very strong follow-up to an investor meeting would be to return 6-12 months later and say: "Hey, I really enjoyed meeting at you last year. Back then, you were worried that we wouldn't be able to do X and Y, and said you'd like to see revenues of at least $Z/month. I'm happy to say that X and Y are done, and our revenue crossed $Z/month several weeks ago. If you're interested, I'd love to chat with you about our upcoming fundraising round..."
What questions should you ask?
The goal of most questions should be to understand what resonates with investors, what they're concerned about, and what they would do in your shoes. Here are some sample questions:
- What aspects of the company excite you?
- What do you think will be our biggest challenges in the next 6-12 months?
- Does this company fall in your investment focus area?
- What would you want to see before deciding whether to make an investment?
- What advice would you have for us for the upcoming year?
Figuring out what investors like, in aggregate, is a good way to refine your pitch. If your core selling points to investors are your team experience, your product idea, and your go-to-market strategy, and most investors say that your go-to-market strategy is the thing they're most excited about, then your pitch could start emphasizing that aspect even more. Or you might need to spruce up the way that you present your team and your idea.
Figuring out where investors are concerned helps you refine your pitch, refine your business plan, or both. If most people bring up the same potential weaknesses, then you should do your best to address those weaknesses. The ultimate goal is not to figure out how to impress investors, but to improve your company's chances of success. Success is the best way to impress investors.
What questions should you be careful with?
Be careful when soliciting product feedback. Opinions on UX or features to implement or sales messaging are nice, but very easy to get wrong. For product-related questions, customer feedback -- or better yet, data on customer behavior -- trumps investor feedback by a wide margin. Investors' product opinions are less meaningful because they are not the target demographic for most products. Furthermore, the problem with product feedback is that most people can't predict how a group of users will behave. Googling for "surprising a/b test results" and looking at pages like this one demonstrates just how wrong our hunches can be. When building your product, trust aggregate customer feedback much more than individual user feedback.
What if you don't like an investor's opinions?
Talking with investors is like going on a lot of dates: you will waste a lot of time, but you'll also learn a lot about what you want, you'll learn a lot about what people you like want from you, and when you meet a great mutual match you will feel that the wasted time was completely worth it.
First, you won't like every investor, and not every investor will like you. That's okay. The goal should be to find the best partner, not to be liked a little bit by everyone. If you don't like an investor's approach or ideas or personality, don't try to force a relationship or an investment. Move on to someone else.
Second, you'll hear inconsistent opinions. Investor #1 will tell you that they want to see $100k in monthly revenue before investing while Investor #2 will say that they don't care about revenue but want to see high user growth and strong engagement. Neither investor is right or wrong, and both investors are simply telling you what they value in the companies they work with. Their preferences are a filter for them, but also a filter for you. If you think you should focus on growth, then keep in touch with Investor #2; if you'd prefer to build revenue as quickly as possible, then focus on Investor #1.
How should you respond to feedback?
Say thanks. Don't be deferential, but don't be defensive, either. Drilling in and understanding the feedback is important, so don't hesitate to ask questions. Productive debate is good; defensiveness is bad.
When should I follow the advice in this post?
Whenever you want to! These are guidelines, not strict rules.
If you have suggestions for other questions that should be covered in this post, please let me know on Twitter and I will update the post accordingly.
Thank you to Sean Byrnes for giving me feedback on this post.