How to ensure your cold approach finds a warm welcome
At Octopus Ventures we have our own ways of proactively seeking out businesses we think might align with our mission and values. We also rely on other investors, or founders we know, to make warm introductions, recommending entrepreneurs they think might be a good fit.
But founders starting out without deep links in the industry shouldn’t despair. We meet plenty of founders through cold approaches (there’s even a guide to pitching us on our website). If you’re about to start your first fundraising journey, and you’re worrying about how to secure investment without any industry links at all – read on. This guide offers tips on ensuring your cold approach finds a warm welcome and some insights on what to expect as the pre-investment process unfolds.
It’s a tough process and requires a range of skills – but nothing a founder doesn’t already have in their arsenal. It begins with something all early-stage founders should have well-honed…
A sales mindset
Successful B2B SaaS founders know what it takes to win a prospect. The most important thing to remember about raising a round is that it requires the same attitude, headspace and approach.
If you were pitching your product, would you go into a meeting, talk at a customer for 30 minutes and then leave? Probably not. You’d want to understand the problems they’re looking to solve, learn more about their process, get an understanding of how familiar they are with the sector – and discover what excites them.
Like sales, fundraising is about storytelling. It’s a question of managing the process, driving excitement and seeking clarity on where you stand, so that you can redirect your energies if things aren’t looking good. Investors need to believe in your product and solution, they need to believe in the team you’ve assembled – and they need to believe in you.
Do your homework!
Every fund has a different area of focus, and, within each fund, different teams manage different verticals.
When you’re making a cold approach, it’s important to ensure that your email lands in the inbox of the right investor for your business. Most blogs will tell you to reach out to the partner, or senior investor, working in your space. Here, I’ll offer a dissenting voice.
Yes, those people might, ultimately, be the decision-makers. But they’re also likely to be the most stretched, spreading their time between a host of different boards, as well as operational, strategic and management responsibilities internally.
Ultimately, if the investor you pitch to wants to move forward, someone senior will get to know about your business. But if you’re making a cold approach, your inbound is likely to make more of a splash if it lands with a more junior member of the team with the capacity to respond.
This means detective work is in order. If you just go by funds’ websites, you might come away with the impression that a lot of them are industry-agnostic. It’s why you have to dig a little deeper, hit up LinkedIn and get to know who does what, where. Look for board memberships with companies you feel kinship with and, as I’ve said, think twice before contacting the most senior member of the investment team. An individual sitting on seven, relevant boards is likely to have more time to respond to you than one sitting on 15.
This work takes time – but in the long run, it’s an efficiency-driver. Sending off fewer, well-targeted emails is likely to yield better results and a higher response rate than a broader approach.
AI is fine – but keep it tailored
We expect that founders are using AI smartly to generate efficiencies in all areas of their operations. Fundraising is no exception.
Leaning on AI tools to help with outreach is a blameless move, but there’s a difference between automating word-processing tasks and automating relationship building. We still want to know there’s a human behind the email.
Spelling mistakes or category errors, such as writing to me (a B2B SaaS investor) to pitch a consumer business, won’t do much to win my confidence or gain my interest. By all means use AI to assist in the search, or draft-up your opener, but try to make sure whatever it comes up with is a) relevant to the investor you’re contacting and b) contains the information we need to inform our decision about moving forward. An uninformative, templated approach isn’t going to cut through.
Conversely, the email doesn’t need to run-on, covering your whole company history and value proposition – you’re sharing a pitchdeck too, after all. Instead, cover a few key points:
- Your business sector
- What stage your business has reached
- How much you’re raising
- What country you founded the business in
Prepare for a conversation…
As I’ve written, the earliest contact with an investor is about storytelling. While other funds may differ, if we’re interested in a pitch deck at Octopus Ventures we’ll arrange a half hour call. It’s an opportunity for us to ensure that synergies exist between your company and our mandate.
What it isn’t, is a pitch. We’ve seen the deck and we’re interested – or we wouldn’t be talking. What we need to discover is more about the specifics of your business, whether you have market fit and if we believe that the product you’re selling is really going to change the world.
As a founder, at this stage, rather than reciting your pitch, we’d prefer you to be ready for a conversation. We want to scratch away, dig into some specifics and get to know you – it’s how we do things. Of course, founders can refer to key slides in their deck if it’s important, but if we only have half-an-hour to get to grips with your pioneering solution we want to make it count. For founders it’s about selling, storytelling and having answers ready.
…and the best outcome
If that meeting goes well, we recognise good synergies, and we feel like we can work together, we’ll want a demonstration of your product and a closer look at your financials. If we’re confident in these, we’ll consider putting together a term sheet .
To put a term sheet together, the investors involved in discussions with you first need to write an investment committee (IC) paper, take it to the committee (this is where those senior figures will hear about you) and make the case for why we think we should be investing in your business.
This is when speed of discovery matters. We can’t just go to the IC with a list of great things you and your company have accomplished, we also need to highlight areas for improvement and a clear strategy for addressing them. Humility is important, here. After all, we’re trying to build a relationship. If everything goes well, we could be working with you for the next five years or more – and we recognise that everything isn’t going to be perfect all the time.
In the first meeting you’ve been in sell mode: now it’s time to share a fuller picture and explain how you’ve engaged with any challenges you’ve faced. If you’ve gone through a period of churn, for example, don’t meet our questions about it defensively. Instead, boost confidence by explaining why – and how you’ve fixed it. If investors are asking for more information it’s a good sign – it means they’re interested and they’re seeking more conviction to bring to their IC.
From the first meeting to a term sheet offer generally takes around three weeks. But it can be faster. Heading into the fundraising process well-prepared for a good outcome will speed everything up; if you have everything ready, you’re responsive and we’ve easily gathered all the information we need those three weeks can be compressed down to one. Delays tend to creep in when information isn’t ready or comes in a format that’s hard to decipher.
Here’s a list of the documents and information we generally ask founders for after the first meeting if we want to move ahead:
- Monthly returning revenue (MRR) by customer
- Monthly profit and loss (P&L) which we can use to analyse costs and efficiency of growth
- Monthly indirect cashflow
- Latest balance sheet
Things to remember, questions to ask and what comes next
At the end of every call with an investor, it’s worth checking in to get a sense of where they stand. At the end of the first call you might ask how relevant they think your business is to their investment mandate. It’s a good way of taking the temperature of their excitement. We’d encourage you to be pro-active, establish actionable next-steps and always send details through in a timely manner.
If all goes well with the IC, a term sheet is issued and it gets accepted, there’s a process of due diligence that typically lasts around six weeks. Legals run in parallel with due diligence, before the money lands in your account.
Despite our best efforts, the process of fundraising is, unfortunately (and unavoidably), quite arduous. It demands lots of a founder’s time and can be a real distraction from the main event: the operational demands of a start-up.
During these six or so weeks is a great time for founders to decompress from fundraising and get back to the day-to-day of running their business. It’s also an opportunity to start building a strategy for the plan we’ll work with you on when we’re officially aboard and look to the future and your growth plans.
As a partner, Octopus Ventures offers more than just capital. We have a dedicated team of experts on-hand to assist with HR and people challenges, as well as a portfolio of programmes and a wide network, all of which we leverage to give the founders we back every chance to succeed.
If, after reading about the process, you think you might like to introduce yourself and your world-changing software company – get in touch. You can reach the team here. We also invest across health, consumer, fintech, deep tech, bio and climate.
Learn more about what we do, and uncover a host of great resources designed to make the fundraising journey a little easier, right here on our website.
