3 Tactics to help with closing your first investor
$10,800. Dennis' check was the smallest check we've ever raised from investors; but it was also the biggest. While subsequent venture capital and corporate investments added several more zeroes to our bank account, Dennis' check--our first--added much more at the earliest stage in our company's founding: credibility with our investor community, confidence we could achieve our vision, and capital to reach critical company milestones.
Every entrepreneur raising capital comes to the same conclusion: no one wants to be the first investor in their company. Many investors want to be early. "Early" equates with the high risk, high reward that has elevated a select few angel investors into billionaire status, but no one wants to be the very first. Like us, you need to find your Dennis--the one investor who will jump off the cliff with you and be that very first investor. Follow these three tactics to find and close your Dennis:
1. Create a network of could-be investors
If you plan to go around cold calling qualified investors to invest in your business, particularly if this is your first company, good luck. Not only does the lack of an established connection prevent you from getting in the door with investors, it is often the case that entrepreneurs ask for money before they truly need it.
To find your Dennis, you have to build a strong network of could-be investors. This network creation comes as the result of two steps. First, identify could-be investors in every one of your networks (work, school, locality, friends and family). Founding NuLabel out of school, we immediately looked to our alumni network for could-be investors and in our local entrepreneur community in Providence, RI--where we connected with Dennis. Second, engage could-be investors to provide what you really need when you first launch your business: intellectual capital. Most could-be investors bring valuable advice to the table, and engaging could-be investors as informal advisors can build a strong connection to your company's story without immediately demanding they open their wallet to help you as an investor.
2. Treat could-be investors like they already invested
Now that could-be investors are engaged and even providing occasional, informal advice, treat these valuable members of your network like you would an existing investor. Provide them with regular updates that establish meaningful, achievable milestones and showcase results. As you achieve these milestones and share them in a consistent and periodic manner, momentum builds, risk starts to evaporate, and your could-be investors start to become will-be investors as you establish a track record of results that exhibit not only you achieving your vision, but their intellectual capital creating value.
3. Ask for the check
Don't wait for your potential first investor to offer to invest, because that won't happen. Instead, ask for a specific investment; state the use of proceeds; and most importantly, explain how this first check can be leveraged into many additional, bigger investments from others. With an immediate term need to fund a specific, measurable milestone, we asked Dennis for the capital to cover the expenses to get to that milestone. We showed upfront how we knew we would exceed expectations and that we had several interested could-be investors awaiting the achievement of that milestone who ultimately jumped in less than one month after Dennis' check came in and we accomplished that immediate term business objective.
The lunch bill when Dennis told me, "Yes, I'm in," was modest: two cheeseburgers, two Diet Cokes, and a side of fries. The feeling after Dennis agreed to invest $10,800: well, that was worth a million bucks.
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