In the fundraising process, founders need to figure out how to access investors. The conventional wisdom here is that founders need to hustle and persevere, knocking on a lot of doors until someone answers. While resourcefulness is always valuable, we believe that running an airtight process is perhaps the most crucial lever that drives success.

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In a previous post, we have shared ideas on how founders should go about identifying the “most likely” investors for their specific startup. Subsequently, founders need to run a simple process to create access:

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1. Tap Into the Existing Network:

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The world is more connected than many of us realize. Most founders know someone who can introduce them to a given investor. The challenge lies in not knowing who we know that can introduce us to a given investor. This, then, becomes an information or knowledge problem.

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Metal’s platform solves the above with a simple functionality – the platform integrates with your Gmail / LinkedIn data and then checks each of your connections against a proprietary record of 100,000+ VC-backed founders and investors. Within minutes, the platform is able to identify who you know from the venture industry.

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Once a connection is identified, the platform further identifies all the investors that that particular connection knows (based on recent co-investments in the case of investors and recent investors in the case of VC-backed founders).

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On the Metal platform, founders can look up any investor and view a set of optimal introduction pathways. This eliminates the need to spend hours of research on LinkedIn and surfaces introduction pathways that you previously weren’t aware of.

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2. Creating Access Where None Exists:

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Most established investment firms have previously funded hundreds of founders. And many of those founders are easily accessible via email. Using Metal’s platform, for a given investor, you can immediately pull together a list of portfolio founders in your specific country or sector that are most relevant for you.

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You can then write concise and compelling notes to such founders to get them to introduce you to the given investor. If your note is persuasive, and if it is accompanied with a compelling pitch deck, you may be surprised at how many portfolio founders are willing to broker an introduction.

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Founders that don’t have the time to execute on the above process to request introductions and/or cold email portfolio founders are best served by hiring a fundraising EA that can run through the motions of building access and landing investor meetings.

Instead of relying on hearsay, founders across the board are now taking an empirical approach to raising their next round. At Metal, we are seeing customers use our platform in novel ways to discover the “most likely” partners for their company and round construct.

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Before pursuing an investor, founders need to run a “qualifying process” to ensure that the prospective partner is a strong fit. A rigorous process to identify, research and qualify investors is the highest leverage activity within fundraising, one that improves conversion rates.

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The below post focuses exclusively on identifying the “most likely” investors, and does not cover the qualifying process. In the identification process, there are six core principles at play.

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Focusing on “Stage Specialists” vs “Stage Tourists”

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Founders often confuse pre-seed and seed investors as one and the same. The common perception is that these are just stage names that do not carry much significance. In reality, investors have vastly different expectations at preseed versus at seed, and most investors that specialize at seed do not specialize at pre-seed. Readers that are looking to understand investor expectations at each stage can read more here.

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First Round tends to invest early, but they are really seed-stage investors, and not pre-seed partners. Since they specialize at the seed stage, they are “seed specialists” and “pre-seed tourists”.

By definition, stage specialists are investors that specialize in a given stage. Stage tourists are ones that invest in that stage opportunistically in outlier or unique opportunities.

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The first challenge for founders is to identify a set of “stage specialists” for their specific stage. This is easily achievable by filtering investors based on the percentage of investments that they have made in a given stage. The key thing is to not settle for ambiguous tags applied to investors in the absence of any underlying data.

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‍Distinguishing Between “Sector Familiarity” and “Sector Concentration”

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For venture investments, the landscape varies substantially from one sector to another. Some sectors have very strong and ongoing venture activity (I.e. B2B Software) while others have fewer investments in total (I.e. Industrials or Robotics).

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For any given sector, there are two types of investors – 

1. Investors that are familiar with the sector
2. Investors that are concentrating investments within the sector

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Investors that fall in the (1) category can be identified using a simple filter that identifies all investors that have made a minimum number of investments in a given sector. Investors that fall in the (2) category can be identified by filtering for investors that have made a minimum percentage of investments in a given sector.

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Investors that are familiar with a given sector are those that have previously invested in that space and are familiar with it. Investors that are concentrating in a given sector typically have a strong thesis for that opportunity space and may sometimes be stronger partners.

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As an example, Khosla Ventures is a well-known VC firm that has been concentrating investments in the healthcare sector. To date, they have made 27% of all investments within healthcare. Within healthcare, about half of all investments are in two specific sub-sectors: Drug Discovery (24%) and Therapeutics (29%).

It is fairly likely that Khosla has a clear and strong thesis in these sub-sectors, which may sometimes make them a particularly strong partner for healthcare companies building in these spaces.

Finally, at the pre-seed stage, most investors tend to be sector agnostic. This is primarily due to the investment model of venture investors at the pre-seed stage.

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Finding Geographically Relevant Investors

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Most users are either overly restrictive by focusing on only those investors that are based in their specific country, or are too liberal and end up pursuing investors that don’t focus on their geography. 

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• For founders in countries that have a highly developed venture ecosystem (I.e. US), the right approach is to identify investors that have made a healthy percentage of their investments in North America. This typically includes a large number of investors across Europe and Asia that love investing in US companies.

• In developing countries, a recommended approach is to identify investors that have previously invested in similar geographies. As an example, founders building in Egypt may want to identify investors that have made at least “3” investments in a cohort of similar geographies (I.e. Indonesia, Bangladesh, Pakistan, Egypt, etc.).

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The key thing is to identify investors that are “geographically relevant” based on their prior investments. This is typically different from taking an overly restrictive approach whereby users are focusing only on those investors that are based in their country or region.

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Tuning Into the Right Fund Size

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Founders raising large rounds need to target a small set of VCs that have large fund sizes. For such founders, the options are fairly limited (as there is a very limited number of VCs with a fund size of $500m+). On the contrary, founders looking to add a small amount of capital ($<1m) to an existing round need to target micro VCs that write $100-300K follow-on checks.

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The general rule of thumb is that most investors maintain a check size that is roughly 1-2% of the total fund size. As an example, investors with a fund size of $100M will typically write checks in the $100-200K range.

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Depending on the round dynamics, founders can focus on investors that have a fund size that meets their round requirements. A fund size mismatch is often a primary reason for why investors are unable to lead or participate in rounds.

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Zooming In on “Active” Investors

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Similar to startups, venture funds tend to have a fluid nature. At any given point in time, only 10% of all venture funds are actively deploying capital. Founders, therefore, need to filter for and focus on investment firms that have made at least “1” investment in the past 3 or 6 months.

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It is extremely common for founders to learn after a few calls that the fund is “barely active”, making only one or two investments each year. For funds that are operating in a “barely active” mode, the overall risk appetite is unique. Such funds will have behaviors that are a lot less predictable than ones that are actively and consistently deploying capital.

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Focusing on Lead Candidates at Round Kickoff

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Early on in the process of raising a round, founders need to first identify an “anchor” investor to lead the round. While most funds lead occasionally, there is a fairly limited pool of investors that frequently lead rounds, and that do not wait for a lead to come in before committing to invest. 

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When starting a round, founders need to focus on investors that have a history of leading. This is easiest to identify by looking at the percentage of investments that a given investor has historically led.

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Final Thoughts

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In summary, the six core principles defined above help build a clear criteria for the sort of round that founders want to raise. Based on the round requirements, founders then need to run a rigorous process to identify the right set of “most likely” investors. By targeting their efforts on the right set of investors, founders can significantly increase conversion rates at every step of the fundraising funnel.

A small subset of all VC firms tend to specialize in sectors. Such firms typically follow a clearly defined thesis on trends that will lead to growth in a given sector. In the early 2010s, one such trend was technology-driven marketplaces – this created many sector-focused VCs that specialized in marketplaces.

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1. Sector Specialists as Domain Experts

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Founders often report having high-context conversations with sector-focused VCs. These firms are often deeply knowledgeable about a given space and have the ability to bring domain expertise to investment discussions. 

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In a given fundraising process, founders should add at least a few sector-focused VCs that truly understand their sector. This is best achieved by pulling together a list of VC firms that have made 20%+ of their portfolio investments in your specific sector.

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In some sectors (such as biotechnology), specialist investors are more important than in others. In most sectors, founders can have high-context conversations to sharpen their thinking by engaging with investors that truly and deeply understand their sector.

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2. Geo Specialists in Developing Countries

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Similar to sector VCs, geo specialists tend to bring deep expertise around a given geography. For founders in developing countries, such VCs have already overcome the biggest obstacle of being open to investing in their specific country. In such geographies, geo specialists can be an integral part of the fundraising process.

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This is best achieved by pulling together a list of VC firms that have made 5%+ of their portfolio investments in your specific continent (along with at least a few investments in your country). Identifying VCs that have made at least “1” investment in a set of similar countries can be a great way to identify firms that may not have invested in your specific country, but are likely to be “open” to doing so.

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