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đ° How To Build Your Investor Pipeline
Learn how to build a strategic investor pipeline with our guide. Discover tips on identifying the right VCs, leveraging Signal and open-source databases, and securing warm introductions to accelerate your VC fundraising journey.
Toby Egbuna
February 8, 2024
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Note: this is the what behind CREAM. Over the next few weeks/months, Iâll be sharing the how. Subscribe to my newsletter to get these insights straight to your inbox.
CREAM:
Ready your documents
Establish an investor pipeline â todays newsletter
Activate your fundraising round
Maintain relationships
The importance of building your investor pipeline
There are over 12,000 venture capital funds in the US. You canât talk to all of them, nor should you. Thatâs why itâs important to build your investor pipeline and identify funds that are good fits with what youâre building. This is a two-part process:
Find eligible investors
Find people who can introduce you to those investors
Think about it this way: fundraising is similar to sales (it is definitely NOT the same thing, but Iâll elaborate on that later). If your product is an e-commerce platform for Shopify retailers, youâre not going to sell it to brick-and-mortar small businesses that donât have an online presence. Be very intentional about meeting with the right investors.
Finding eligible investors
There are three categories weâll use to identify the right investors:
Geography - Does the fund make investments where you are based?
Most of the time, this is simple as you can filter for funds that operate in your specific country/state, but you might cross funds that are listed as investing in the US but in actuality, they only invest in a specific state or territory. Ex: Red Hawk Ventures only invests in companies that are based in Alabama or willing to move to Alabama.
Industry - Does the fund make investments in your industry?
If youâre a healthcare tech startup, youâre not going to have any luck pitching VCs that invest in consumer tech. Some funds are âindustry-agnostic,â meaning they invest in any industry and take bets on the founder and team. Some are wildly specific and only invest in solar energy climate tech. VCs generally use the same terminology for the industries they invest in, so ruling out a fund based on their listed focus should also be easy.
Stage - Does the fund make investments in the stage my company is in?
Last is the stage. If youâre raising a pre-seed, youâll want to look for early-stage funds. Some funds are specific and try to invest as early as possible (as in when thereâs only an idea on a napkin, such as Hustle Fund) and some try to invest when thereâs more traction but the company is still pre-product-market-fit. One thing to note here is that peopleâs definitions of stage vary dramatically. For example, a lot of investors in the Southeast US will consider a company doing $500k as a Seed-stage company, while VCs on the West Coast would make a Seed investment as early as $0-50k in revenue.
How to find your VCs
There are a lot of public investor databases, but Iâm going to limit this list to the best kind: those that are free. That leaves us with Signal and open-source databases.
Signal
Signal is a public investor database with thousands of VC funds available for you to look through. With this platform, you can segment funds by the three categories mentioned above plus a few others:
Using the example above of the Shopify e-commerce startup, and filtering for Seed funds in the e-commerce industry (Sector of interest in Signal), I can use Signal to see that there are 1033 potential investors in its database.
Signal doesnât let you filter by multiple geographies at a time, and filters for a specific location include any funds that invest in that location, so for demonstration purposes, weâll filter exclusively for funds that invest in San Francisco as itâs a safe assumption that they also invest anywhere in the US. That leaves us with potential 735 investors.
That sounds like a lot, but remember that fundraising is similar to sales. Doing the math from my own experience, I started with a list of 300 funds and ended up closing 2 VC investments. Thatâs a .67% close rate.
For that reason, you want to make your investor list big so you can line up as many meetings as possible. To be safe, try to start with 300 potential funds.
The pros of using Signal are that the database is massive and the information is accurate as they have a connection to LinkedIn. The downsides are that you canât export to csv., and the list can be a bit overwhelming to start with.
Open-source databases
Open-source investor databases are lists that are created by someone else and shared publicly for other people to look through. Youâll often find these in a public Airtable base or Google spreadsheet.
Similar to Signal, most of these will allow you to filter based on the three big categories, and some might even include contact information for investors.
Here are some of the open-source databases that I tapped into during our raise:
The pros of using open-source databases are that many of them (like some of the ones listed above) are built for specific purposes like listing VCs who invest in underrepresented founders. The downside is that they arenât updated regularly so some of the information can be outdated.
Building your investor database
Now that you know where to find investors, we need a place to keep your list! That is where your investor database comes in.
For this, I highly suggest using Notion, but you can also use a Google sheet.
First, create a database, and title it Funds.
Next, update the database to include the following columns:
Name of fund
Contact
Website
Funding stage
Location
Industry
Check size
Who can intro?
Now, the tedious part. Youâll want to populate this spreadsheet with all of the funds that would be a good fit for your round. You can use the properties field in Notion to streamline this and make it easy to filter once the list is built. You should be able to populate every column except for the âWho can intro?â column. Weâll save that for a bit later.
Or, you can just use my template â access template.
Please note: this will take time. A lot of time. Again, you donât want to raise without having a list of at least 300 potential funds. You want to be as efficient as possible, and this is a great way to do that.
Requesting introductions
When youâve finished building your spreadsheet, the only remaining column will be the âWho can intro?â column. First, letâs talk about why you need introductions to investors.
The importance of the warm intro
As Iâve mentioned, raising venture capital is predicated on your ability to get a warm introduction to a target investor. Many VCs will claim to accept cold emails and/or require you to apply for funding on their websites to be objective about their company pipelines, but all of that is 𧢠(cap).
VCs and other investors regularly share the companies theyâre looking at - aka âdeal flowâ - with each other. They expect people to email them new investment opportunities, and in my experience, a lot of the funds that claim to only invest in people who follow their formal process still accept warm introductions. The practice sucks, and it needs to be banned if VCs do want to be inclusive about who they invest in, but thatâs hopeful at best.
How to get a warm intro
Hereâs a simple process that Jenny Fielding, Managing Partner at Everywhere Ventures and former Techstars MD, on how to find people and request warm introductions:
Build your investor pipeline - â
For each fund, go to the fundâs website and see who is on the team
Find at least 2 people from the Team on LinkedIn
See what mutual connections you have with that person
Put the name of the mutual connections in the âWho can intro?â field for that fund
Repeat steps 1-5 for the other funds in your list
Hereâs what it looks like in practice:
First, Iâll select one of the funds from my investor pipeline. Letâs go with Harlem Capital
Clicking into the Team, I see that they have 5 investors - 2 Managing Partners, 2 Partners, and 1 Principal
Iâm going to aim for the head honchos and look to see who in my network can introduce me to Jarrid Tingle and/or Henri Pierre-Jacques
Looks like I have 100+ mutual connections with Henri and Jarrid! Good start.
Now, I just need to figure out who to ask for the intro. Ideally, I find someone who 1. I have a good relationship with but also 2. has some clout so the introduction is taken seriously. I suggest looking for people who are either founders themselves or work in venture capital with another fund.
In my case, Jack, who I know from working with the Peachtree Minority Venture Fund, is a great fit.
I would do this again and find at least one more person who can make the introduction to Henri, and then Iâd do the same to find at least two people who can introduce me to Jarrid.
Asking for the intro
Now that you have your pipeline built and you know who can introduce you to the investors, you need to start asking for introductions.
I wish we had an easy-to-use communication to ask for these introsâŚ
Oh, wait! We do! đ
Go back to the comms that you created in the Ready stage of CREAM and find your forwardable email. It should look something like this:
Hi <name> - Great catching up with you earlier today. I would love an introduction to <investorâs name or VC name>. Iâm including a blurb below that you can forward along.
All the best,
Toby
Toby Egbuna is the Co-founder of Chezie (www.chezie.co).
Theyâre working to help 57,000 companies around the world create better products, grow sales pipeline, build more inclusive workplaces, and ultimately drive business results by reimagining whatâs possible with their most under-utilized asset: employee resource groups.
Theyâve had some great early success since launching in Oct 2021. Some quick points on their traction:
$1M ARR
37 enterprise customers including Acme, Dunder Mifflin, and SHIELD
90% of sales through word of mouth
Theyâre currently raising their pre-seed round, of which $750k is already committed. You can read through their deck here: https://docsend.com/view/link.
Simply load up this template and change out the <name> placeholder to add the name of the person youâre requesting the intro from. It is a best practice to personalize the message at least a bit - so try to add some sort of customization to each request so the person knows it wasnât a blanket email.
Things to consider
The process is pretty straightforward, but, as with everything, there are some nuances. Here are some of the hacks for building your investor database:
Ideally, you try to get introduced to a Partner at the fund, but Partners are experienced and more judicious with their time than analysts or more junior investors are.
Most funds do a weekly or bi-weekly team meeting where everyone brings up deals that theyâve sourced and presents those deals to the team. Much of the sourcing is handled by these junior people, so donât be afraid to ask for introductions to them. Just keep in mind that meeting with an analyst means youâll have more meetings before you get to a decision.
ALWAYS send a note to the person who made the introduction after you connect with the investor. People like to be helpful, but what they like even more is to know that their help was valuable. Give folks their flowers!
Hereâs an example message that I sent to the person who made the intro for our pre-seed Lead investor:
Itâs okay to tier the funds in your pipeline. I was interested in working with Harlem Capital based on the fundâs brand and focus on investing in underrepresented founders. If thereâs a fund in your top tier but you donât have a direct connection to someone on the investment team, look to see if someone can introduce you to someone who has a direct connection, who can then introduce you to an investor. I wouldnât go more than two degrees of separation from the investor, but this is worth a shot for those funds that youâre really excited about.
Fundraising is similar to sales, but they are not the same.
Okay, now I can address this. People will tell you that fundraising is just like sales. Itâs not. Those people are wrong.
Sure, thereâs some overlap in terms of conversion rates (if you want to close 10 deals, youâll probably need to connect with 100-300 customers depending on how good of a salesperson you are), and you are âsellingâ your company and vision to investors, but thatâs basically it.
Fundraising is all about signal (not the database, the term), or the signs that an investor should invest. There are a few components of signal - a good team, a big market, notable traction, etc. - but none of those signs matter more than who else is investing.
If youâre raising your round and you get a commitment from a top-tier VC like a16z or Accel, that is signal that experienced investors believe in your company, and often, that alone is all they need to invest.
Summary
If youâve made it this far, you have now:
Considered and determined that venture capital is the best funding path for your company
Readied your documents, including your pitch deck, financial model, market calculations, comms, and data room
Established your investor pipeline and identified people in and around your network that can make introductions for you
Next, the real fun begins. Weâll activate your fundraise and help you start talking to investors.