IP and Investors, Part 1: Setting the Stage for Financing
Published
October 16, 2023
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Most companies seek financing from investors at different stages of their business growth. Setting the stage for financing can be complex – perhaps you are looking for tips on how to look for potential investors who can make a positive contribution to your business or maybe you have gone through the funding process before, and you want to improve your pitching skills. Whatever the case may be, this article will guide you on how to prepare to navigate the financing process by properly targeting the ideal investors and crafting a strong pitch.
Identifying Potential Investors
Funders and Investors
To begin, it is important to know the difference between investors and funders:
Investors are traditional institutional capital investors, whether non-dilutive or dilutive in nature, like venture capital, hedge funds, and others. Funders are typically granting bodies that provide more non-dilutive, reporting strings, like government grants, university grants, and IAC. What’s important to know is that both have an increasing interest in evaluating intangible assets when deciding to award a grant or invest in a company.
Where do I look for investors?
Identifying potential investors takes some research. Surveying the landscape of your sector is helpful in making sure you are targeting investors that are a good fit for your company in its current state, based on your company’s financial objectives. Sources like these can be good options to look for traditional capital investors:
These are just a few options, but there are many; use your network and ask for recommendations from founders or companies similar to yours. Investor interest will depend on your technology space, geographic region, and company stage, particularly for angel investors.
Get to know your investors
As you research potential investors, try to understand what is important to them — this will help you connect with them. Consider:
- Do they have experience in your industry or other companies at a similar stage?
- Are they collaborative and interested in enhancing the companies they work with?
- Do they have a strong network? Would they fill gaps in your current business plan and/or leadership experience?
- Are they connected within the investment community? Could those connections benefit you?
Finding all the answers to these questions online may not be possible, but it is well worth asking colleagues and networking your way to dig deeper.
Before contacting any potential investors, be sure to familiarize yourself with their mandate, their investment criteria, and their risk profile – this will allow you to see if they are a good fit for your company. Moreover, knowing this will assist you in setting the tone for how to share your company’s story with them.
Investment criteria
Investment criteria will vary depending on the investor and where you are in terms of funding (e.g., early stage, late stage, etc.). Here are three criteria that most investors will include, no matter the stage.
Strong leadership team
- They want to ensure your team is knowledgeable, credible, and committed to the business.
Viable market opportunity
- There is a market for your product or service and opportunities for growth.
Competitive advantage
- Your company has an edge or features that differentiate it from competitors or potential competitors. You are providing barriers to entry by having IP protection or a strategic roadmap that includes leveraging IP protection.
- Additionally, investors may be interested in your business model, company structure, technology, financial metrics, use of investment funds, and others.
Risk profile
An investment is a fine balance between risk and opportunity – for both your company and for investors – so it’s just as important to evaluate your investors as it is for them to evaluate you.
Do some investigation to figure out an investor’s risk profile and ask yourself if what you’re finding matches your company’s vision.
- What is the investor’s preferred industry sector or area of specialization?
- What is their preferred stage of company development? Keep a list to refer to as your company grows.
- What is their preferred investment amount? Does it match the amount you are seeking?
- Do they have a preferred region for investment?
- What is their risk profile? How does this fit with your company’s strategy?
- What are their KPIs for measuring the success of their portfolio companies?
Prioritize your ideal investor
Instead of focusing on a wide number of investors to approach, consider targeting your ideal investor. Prioritize investors who seem to be the best fit for your company, meaning those who have a proven track record of investing in businesses like your own, and have a solid understanding of your target industry. Follow these steps:
Build a shortlist of potential investors
- Build a shortlist of names that seem like the best fit for your company and create a plan to reach out. Investment rounds can move quickly so if you can only keep up engaged correspondence with one or two candidates at a time, don’t reach out to more than that.
Do targeted “reach outs”
- Although engaging your network is a great way to find new names, it’s also a good idea to do targeted reach outs to those in your network that have worked with the investors on your shortlist.
Focus on quality investors
- Try to find out if the investors have shown a vested interest in building other businesses like yours by connecting those companies to their networks and investment community. This kind of help is invaluable, and quality investors will put in the time to build up the founders they invest in.
The preparatory work that precedes the investment process is critical to your company’s success. Targeting the right investors through research and referrals will really go the distance when selling your company’s potential. Once you make a connection with a potential investor, things can move quickly. In part two of this financing series, we will discuss how to craft a strong and succinct pitch that frames your company story in a strategic way to include how your product (or process) fits into the market and its potential for growth.
