KYI – Know Your Investor, Part 1 – Kyle Zasky
Raising capital can be a time consuming and often painful process. The problem is particularly acute for early stage companies/entrepreneurs with little operating history, small personal networks and/or untested business models. There is no magic answer, but there are a few guidelines that can help facilitate the right conversations with the right audience and increase your chances of success. At SenaHill, we have screened over 1200 early stage companies in the past three years, and I am still surprised when an entrepreneur comes unprepared for what is arguably one of the most important conversations of their professional life.
First, do your homework. There are different categories of investors and various stages in a company life-cycle that will dictate the right approach. There are HNW (High Net Worth) individuals, friends and family, crowd-funding, venture funds, private equity and strategic corporate investors. If you are a small business owner looking to fund a restaurant, you shouldn’t be pitching a Venture Capital firm. Likewise, if your business is a high-tech company, with $20M in revenue looking for growth capital, doing a friends and family round is inappropriate. These different investor groups are, of course, all looking for companies that can succeed, but they tend to stay focused on a particular stage, and often a particular vertical of expertise. As an example, SenaHill is focused exclusively on fin-tech and technology-enabled businesses for the financial services sector. While I would love to hear about your cancer screening break-through, or your cousin’s surf shop in Hawaii contacting us to fund those businesses is a waste of your time and ours. High level, if it’s a small, family business, your best bet is to circle up friends and family…folk who will support you because they believe in and know you. If you have a tech start-up in the concept phase, typically you should be focusing on a “seed-stage round,” which can be comprised of individuals, friends and family and smaller institutional investors who are willing to invest smaller sums at very early stages. For later stage companies, those in business for a few years with 7-figure revenue and larger potential, the door opens to speak to more traditional Venture Capital. SenaHill is an early stage investor, and we typically invest at the seed and Series A level.
Once you have identified the right category of investor, your search can be refined further to stage or sector. It’s very easy to screen online the stage and focus of a venture firm. I have scores of examples, founders in the concept stage asking us to connect them with some well-known private equity firms. If you aren’t out of concept stage and looking for 200k to kick-start your business, it’s fruitless to speak to a private equity firm that deploys checks of $50M into well-established mature businesses.
Bottom line: Know your business and your capital needs and ensure that your target investors match up in advance. Don’t be afraid to reach out. If you don’t have a direct connection or a referral, most firms have a facility to send in business ideas for review or contact numbers on their website. It’s our job to source and evaluate new opportunities and we want to hear from you, but do your homework first.
For more on Targeting, Pitching and Interacting with Prospective Investors, stay tuned for Part Two of the series which will look at developing your Investor Deck.
This does not constitute an offer to sell or the solicitation of an offer to purchase any security, investment product or invest in a specific market. All information herein is for informational purposes only and should not be deemed a recommendation of any kind. No representations or warranties are made as to the accuracy or completeness of the information provided herein.