Many founders fall for a common trap: Just because your last round of investors saw outstanding results, doesn't mean that new investors will trust you. They have not seen your performance and aren't likely to believe you.
It is common for founders to ask, "How do I get investors to believe that I will perform?"
We have found that founders who succeed in fundraising are good at building relationships.
The pre-pitch concept goes beyond merely letting potential investors know you exist. You must think less like a founder but more like a marketer when building relationships with potential investors. Most of the relationship heavy lifting happens long before it is time to ask for capital.
There's a good chance that an investor in your area has already made a deal and they may know someone who is an earlier round investor who might be a good match for you.
The pre-pitch approach has many advantages:
It's a good idea to not ask for money. Instead, you are offering a glimpse. Your pre-pitch for relationship-builder doesn't have millions at stake, so you will invariably feel less anxious which leads to better relationships. Don't worry if it isn't a good match.
You can get honest feedback if you don't ask for money.
Establish the baseline: It is important to review where you are at the moment, why it is not the right time to raise capital (the reverse of Why Now), as well as what you need to do until that time comes.
Performance-based trust: Show your potential investor your current performance and your future plans. Later, you can show them that you have achieved what you promised.
7 ways to establish relationships with VCs
You might be wondering what to say to establish a good relationship and trust with the next round investor. Here are some tips:
Look for the relationship and not the money
Recognize your feelings early and mention that you believe it could be a good match later. It is important to state upfront that you are looking for a relationship and would like to discover if it could work out. Do not ask for anything; let the relationship grow naturally.
Here's an example: We are not yet raising children and it is probably too soon for you. This is something I believe you might be interested in and it makes sense to get in touch with someone, establish a relationship, and see if they might be a good fit.
Do not waste your time
