As an entrepreneur, you pour your time and energy into birthing a new product or company. So how do you know when it’s time to seek investment capital, and how do you find the right investor who is aligned with your vision? Two venture capitalists weigh in:
The time to build relationships with investors is always, according to Maxi Kozler, the Los Angeles, Calif. Co-Founder and Co-Managing Director of LDR Ventures, which invests seed capital in budding projects. “An investor friend of mine jokes that it’s never too early to start relationships with investors,” she tells me. “The earlier you can talk to people, the more you’ll get valuable information.”
The mentors and advisors you make in the early stages of your blooming business “will save you a lot of time going down roads that people have already shown are not worth it,” she adds.
Preetish Nijahawan, Co-Founder and Managing Director of Cervin Ventures in Palo Alto, Calif., refers to the investor-founder relationship as a “marriage”. Kozler compares the relationship to a romantic relationship, too. “These are relationships you’ll be in, hopefully, for many years,” she says.
Thus, you want to pick not just the first investors willing to hand out funds, but those “that match your personality and your style of doing business,” Nijahawan says. In fact, he recommends that founders do as investors do when they’re looking into investment prospects. “We do a lot of homework before we invest. We talk to people you’ve worked with. You guys should be doing the same about us.”
He recommends you find an investor “that can add some value in terms of customers, or recruiting, and they don’t freak out too much when things go badly—and things will go badly; that’s just the nature of a startup.”
Of course, finding that perfect match with an investor is not magic. “There’s no formula. It’s a lot of hustle and bustle,” says Nijahawan. “You have to be relentless.”
Kozler says that accelerator programs (formerly called incubators), if you can get into one, can be a great boon to a startup. “They’ll hold your hand, guide you, tell you how to talk to an investor and bring investors there to see a demonstration,” she explains.
Additionally, pitch competitions can provide investor feedback on an idea that can help in the early stages.
As for when it’s time to go after this funding, that depends upon several things. Timing is important, Kozler stresses. “Do you have the right idea at the right time?” She urges founders to be open to receiving feedback. She and her co-founder, her husband, pay close attention when considering a project to whether or not the founder is “coachable” because founders have to be flexible and open in order to take the right advice and grow.
“We always ask ‘What made you think of this idea now? Why do you think it should be in the market?’” she says.
Perhaps the most important question when it comes to investors, she says, is, “How big of a market is there for this? You might have a great idea, and maybe you’ll make a good little business at it, but venture capital is always looking for the billion dollar idea.”
Moreover, you will have to prove to an investor that you have what it takes to keep going against “every single road block that is going to come your way,” she insists.
Nijahawan agrees that a “potentially massive market” is a key selling point to investors. However, sometimes, if you’ve produced a product and attracted a customer, he says the need to hire will drive the need to attract funding.
“You have to be ready in the sense that your idea must be fundable,” he says.