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Step 2: Four Questions to Identify the Right Potential Investors

With investor list in hand, what determines who might be a potential investor? The following four questions are the critical ones to consider as you determine who potential investors for your business are and who you might want to pitch:

  • Does the investor invest in your sector or industry?
  • Does the investor invest amounts that are similar to what you’re looking for?
  • Does the investor invest in companies at your stage?
  • Does the investor invest in companies in your location?

Note: The ChubbyBrain Funding Discovery Engine is an algorithm which considers the above 4 questions amongst others to deliver you recommendations on which investors match your needs and business. It takes about 5 minutes to do and should save you hours as well as uncover some investors you may not have heard of.

Does the investor invest in your sector or industry?

If you are a green tech company and an investor invests in internet, mobile and software companies, there is not a fit. Plain and simple, don’t waste your time trying to pitch this investor. Never. It is a waste of your time, and besides money, time is your other most vital and very finite resource.

How do you know if they invest in your sector or industry? Here are some options:

  • Goto their portfolio page and see if their investments indicate a fit with your industry or sector
  • Check out their portfolio on ChubbyBrain by visiting the investor’s profile and looking at their portfolio tab. This will let you look at many investors in one place whose profiles are structured the same way vs. navigating lots of different websites with different layouts and structures and differing levels of disclosure about investments

Can I just read what the investor says they invest in on their website?

This may be helpful but the reality is that not all investor websites accurately reflect their investment preferences. Sometimes, an investor’s website will state investment preferences that are what they’d like in theory but not what they invest in, in fact. For example, an investor will say we invest in internet, healthcare and green from early to late stage. But when you look at their history of investments, you see they are primarily an early-stage internet investment firm. The investor’s website can be useful but the best way to know if someone is active in an area is to look at their investments and not what they say.

Does the investor invest amounts that are similar to what you’re looking for?

If you’re looking for $500,000, you want to find investors who’ve invested in deals in that territory. Reaching out to an investor who customarily does multi-million series B and later rounds is a waste of time. Sure, they may take a flyer on your business if the planets align, but even if they do, will they give your business as much attention as a firm or individual who makes bets of that size regularly? And will this investor have relevant experience with firms of your size and stage of development? And can they help you put together a syndicate of other relevant investors or make relevant introductions for you? Maybe, but probably not.

Conversely, if you need a multi-million dollar round because your project is research or capital intensive or requires a lot of money to scale or capture the market quickly, going to an investor who participates with angels in less than $2 million rounds is not a good idea for many of the reasons given in the first example.

Remember the raising of money from venture capitalists or angel investors is ultimately a bit about playing the odds. Reaching out to investors who don’t invest in the amounts you are looking for is a bad odds game. Avoid doing so.

How do you know if an investor invests in amounts you are looking for?

  • ChubbyBrain Funding Discovery Engine inherently uses this as one of its factors in its underlying algorithm. You tell us how much you are looking for as one of the criteria, and it looks for investors who invest similar amounts.
  • Look at news about recent investments – You can also look at news issued by companies the investors has invested in or by the investor themselves. This news may tell you the amounts they invest in. Look at enough news and you’ll see whether they are relevant to you. The News tab on investor profiles on ChubbyBrain captures much of this news for investors.
  • Investor Databases – These are generally expensive and geared at the institutional side of the investment game, e.g., VCs, investment bankers, private equity firms, lawyers, valuation firms, etc. but have details about amount invested by these investors although most do not have angel data. CB Insights (disclosure: owned by the same company as ChubbyBrain), has this detail for VCs, angels, etc and has options to buy access for a week or month primarily for entrepreneurs. Again, it’s not free, but the time savings are significant so for efficiency-minded entrepreneurs, it can be useful.

Does the investor invest in companies at your stage?

This may be highly correlated with amount of investment, but there is some distinction. By stage of company, you want to ensure you are finding investors who are interested in companies at your stage of development.

  • Perhaps you have a prototype product you can demo but have not launched. Certain investors may find that interesting while others will not. Some are looking for companies that have already exhibited traction or product-market fit.
  • Perhaps you have already attracted money before and already have a lead investor? This may not fit with certain investors who wish to lead rounds.
  • Perhaps you are a solid existing company with a board of directors defined? Some investors seemingly require board seats when they invest.

Of course, all of the above are negotiable with investors, and if you have a great business with traction, a successful model, etc, investors will be accommodating, but again, as we think about the resource allocation of your time, find those venture capitalists or angel investors whose investment history suggests they’d be interested in companies who are at maturity level consistent with where your company currently is.

Does the investor invest in companies in your location?

Venture capital and angel investing is a local game to some extent. This, of course, varies by investor but is a generally observed rule. Investors like to be in close proximity to their investments so they know what is going on with them, can meet as required, have lunch to talk about strategic or other planning issues, etc.

Of course, they do invest in other geographies on occasion so you want to determine this. If they’ve never made an investment in a company that is in your area, that may mean they’ve never seen a proposal from that area, but it may also mean they just aren’t interested in investments from those areas.

Again, if you have an amazing idea with traction, a team with past entrepreneurial success and customers who love you, geography may not be an impediment. But if you don’t have all those things, geography is important. Your willingness to relocate may nullify geographic concerns an investor may have but saying your willing to relocate just to appease an investor is not a good idea. Say it only if you mean in it. But as a starting point, focus on investors who invest in your area.

So how do you determine if an investor invests in your geography?

  • Look at the investor’s portfolio of investments and see if any of their companies are in your area. You can do this by visiting the investor’s website and looking at their portfolio, if given, on their website. This method may be time consuming as you may need to go to each individual portfolio companies website to see where they are based. You can also visit the investor’s profile on ChubbyBrain and view their portfolio of investments in one place. By clicking on any of their portfolio companies and their contact info tab, you’ll see where they are based.
  • ChubbyBrain Funding Discovery Engine inherently uses location of an investor’s past investments as one of its factors in its underlying algorithm. Based on your zipcode and geographic preferences (willingness to relocate), it looks for investors who match on this important dimension.