Secrets to Finding Investors and Nurturing Good Relations in Venture Capital

For the majority of startups, fundraising can be  a major make-or-break point in their journey. This often entails looking for the right investors, venture capitalists, or VC firms. Creating and managing a pool of investors requires time; while it is simple, many startups overlook this crucial factor.

The secret is to cultivate relationships in venture capital before raising funds. The sooner a startup takes the initiative, the more time it has to explore and develop the relationship with the venture capitalist. These interactions become a two-way discourse when startups are not desperate for funding.

The key to building strong relationships with investors is the same as the key to building any excellent relationship: frequent, open communication. According to studies, 77% of investors aid entrepreneurs who engage with them more frequently. With research and studies like these coming in every day, it is becoming undoubtedly clear that maintaining investor relationships is key to having them invest in your company.

Engaging Target Investors

Startups or founders can vet prospective investors or venture capitalists by asking several open-ended questions. These questions will give an insight into how investors think, their investment areas, and how they support investments, among others. Here are some questions that founders should ask potential investors more frequently to gain insights:

• Who has a final take on the decision?

The first step in your procedure should be to choose a lead investor. It’s easy to find a dozen firms that want to fill out a round, but most will want someone else to lead first. Many founders will hold three or more meetings before realizing this, which is a waste of time.

• What % of the fund are they willing to invest in your business?

Generally speaking, the better the percentage, the more “skin in the game” the VC has. Nevertheless – the bigger the number, the more closely the investor will be tracking the progress!

• Do they typically take board seats?

Financial capital is simple to obtain and simple to use; yet, in today’s venture market, reputational capital and VC time are the real assets.

• How much is reserved for “primary” vs. “follow-on” investments?

The majority of VCs make the first investment and then “reserve” money to keep their ownership in the company in subsequent rounds or to support a struggling business that needs money. Typically, these reserves are described as a ratio, such as 4:1.

Therefore, a venture capitalist that invested $1M in your seed round theoretically has $4M set up for your subsequent rounds. However, don’t assume they will, particularly if you had a rocky beginning.

• What are the reporting requirements going forward?

It’s a good idea to establish clear guidelines for communication from the beginning; some venture capitalists appreciate regular check-ins. For example, some people may insist that you present to the partnership formally once a year. The investor reporting suite by trica can help you with commnicating better.

• What kind of professional relationship will you have?

In some companies, you’ll be welcomed into CEO forums, introduced to cross-functional teams of experts, and catered to in every way. While waiting for things to turn around, some will write the check and disappear.

• What is the diligence process like?

Although each company has its own criteria, you can typically anticipate that they would need references and access to financial and operational data. You should anticipate more diligence later in the round.

• How far into the fund is this investment?

This is a smart question to pose if the fund is new or operates outside of conventional VC circles. Knowing if your potential VC will be around in a few years’ time is helpful. With established funds, this is less of an issue.

The above list of questions is by no means complete. Naturally, you want to ensure that you and your investors agree on the core aspects of the company, the product roadmap, the rate at which you intend to invest capital, and other issues.

Why Maintaining Good Relations in Venture Capital Is Crucial?

Investor relationship management is essential regardless of where the startup is in the funding process—whether it has already raised a fund or is still seeking investors. Let’s examine the relevance of investor relations in more detail.

1. It becomes easier to raise additional funding

Fundraising and investor relations are interconnected. The more a startup keeps the investors or venture capitalists informed about the company’s progress after investment, the more likely they are to maintain enthusiasm for the business.

Furthermore, regular investor updates will keep the startup at the forefront of their stakeholders’ minds and increase the likelihood that the startup will be well-respected in the venture capital circle.

2. The probability of getting assistance increases

When a startup gets funded, they receive much-needed experience from seasoned investors or venture capitalists in addition to the money. This is why when a startup has a problem, whether it be with hiring, networking, or a serious operational issue, it is their venture capital firm that they first approach or turn to.

Maintaining open lines of communication makes it easier to ask for and receive support from the venture capital firm.

3. It becomes easier to keep new investors invested

Constant investor updates are a chance to show the potential investors how the company is progressing over time and give investors key information in clearer context with every update. The more data points the startup shares with them over time, the more clearly investors will be able to see the traction.

Regular updates are the best way to prove to potential investors that the startup is open, honest, and transparent in its communication, which is the key to establishing a strong relationship and trust.

How to Build an Investor Relations Program?

1. Check In With the Investors

Even though it appears extremely simple at first glance, very few business owners routinely solicit investor feedback. Even then, they fail to create a forum for ongoing, honest feedback. Hence, clients must either create an anonymous investor survey or meet with investors in person once a year (even if they are not looking for funding) as a solution to this problem.

2. Communicate Frequently

Creating a thoughtful communication plan with the appropriate touchpoints makes it more implementable.

Acquisition and disposition announcements, a few quarterly market updates, semi-annual or annual webinars, and an annual letter are all examples of communication types a startup may provide to investors.

3. Update the Collateral

The vast majority of investors or venture capitalists receive about 300 queries each year. Therefore, it is challenging and important to create brand memory. The goal should be to stay relevant to both present and potential investors.

And the best way to achieve it is to put in all the effort and produce content that makes it simple for investors to comprehend the value proposition. One-page summaries, presentations, and track records are some of the important marketing materials that a startup should keep updated about

The Bottom Line

Gaining an understanding of what is important to investors and making an effort to put yourself in their position will help build stronger relationships. The best entrepreneurs for investors to share honest feedback. In doing so, they build a better relationship with investors in the long term.

By employing the above best practices,  a startup will be better equipped to find investors who will truly contribute value to the company.

trica equity is a full-stack solution to manage your cap table and ESOPs effectively. Currently, we serve more than 600 startups across India, the US, and Singapore.

If you’re looking for ESOP and cap-table management assistance, book a demo to learn more about our offerings.