The Startup Checklist

20Nurture Your Investor Pipeline

Before you look for investors, it is important to understand some basic facts about the world of entrepreneurial finance:

1. There are many more entrepreneurs than there are investors, with the result that only one company out of every 400 that seeks venture funding actually receives it (even in the less formal angel world, the odds are still no better than one in 40).
2. Therefore, the competition, from an entrepreneur's standpoint, is very tough. In order to be competitive, a startup company needs to have everything in place, from its product to its team to market traction, before it is ready to seek funding.
3. Given this imbalance, most angel investors and venture capitalists (VCs) are reactive rather than proactive. They spend less time seeking out new deals than they do responding to inbound deal flow. As an example, a typical VC might see 500 opportunities cross his desk every year; for larger, more prominent ones, the number could be closer to 2,000.
4. For this reason, angels and VCs use whatever heuristics they can in order to triage the deal flow. One of the primary ones is the referral source. This means that by far the most effective way to reach a would-be investor is to be introduced by someone who knows both of you and thinks that you would be a good match.

For all these reasons, an entrepreneur should recognize that there is no magic bullet for fund-raising. No matter what you might have heard or read in the blogosphere, there is no quick, ...