Why the Scattergun Approach to Funding Your Startup Doesn't Work

It’s a typical situation: entrepreneur has great business idea, or solid proof-of-concept, but entrepreneur needs to raise capital to scale their business and compete.

So they need to raise some seed, or expansion funding to take their business to the next level.

Entrepreneur puts together a lengthy business plan and begins firing it off to investors en masse--otherwise known as the scattergun approach to finding investors.

Hang on…is that the sound of crickets?

All those hours spent knocking together a beautiful business plan covering every last detail of your future ambitions and not a sole is interested. 

This is a soul crushing experience for entrepreneurs and an uncomfortable experience for seasoned investors who are on the receiving end of your solicitation to invest (usually via a cold call, or cold email). 

This is the common approach to finding investors for your startup. We’re here to eradicate that approach. 

A little knowledge goes a long way and a lack of knowledge regarding startup investment has to be one explanation for the continued use of this ineffective method. 

Or it could just be the sheer excitement of knowing that you’ve discovered the Elixir of Life and you just want to tell the world one email, or phone call, at a time. 

The number one way to overcome this problem is to stop firing off emails and phone calls to Johnny Longpockets (don’t worry, I am guilty of this) and his cronies immediately. 

Second, it’s time to smarten up and start thinking like a pro. 

Third, is knowing that the best way to engage with investors is to establish CREDIBILITY before you start talking to them. 

Without this crucial third step, Mr or Mrs Investor will be less concerned with your Elixir, and more concerned as to the reason why you are talking to them in the first place. 

Until you get past the issue of credibility, the investor you are talking to will not listen to what you have to say. If it seems like they are, then they are just being polite, trust me.

A better way... 

If you are giving your elevator pitch to an investor for the first time then chances are you have had some type of conversation leading up to it. 

During that initial conversation you must establish credibility in such a way that the investor knows exactly why you are talking to them. 

The conversation might go something like this, “Hello, I am Bill Smith, and I was referred to you by Johnny Longpockets who mentioned you might be interested in…” 

If you have a name that means something to this person then use it (of course, you will need permission from that person first). 

If you have not been referred to an investor then the conversation might go something like this instead, “Hello, my name is Bill Smith, and I read in the Financial Review that you have an interest in…” 

You need to take whatever link you can that allows an investor to see why you have specifically targeted them with your proposal. 

No investor is going to listen to you until you do this. If you’re Bill Gates then feel free to just introduce yourself as Bill Gates. But if you’re not, then don’t. 

It is highly likely that you will need to borrow some credibility from some firm, or person, who has a fair amount of salience with your investor. 

For example, “Hi Johnny, I bumped into Peter Jones, your accountant, and he encouraged me to give you a call about…” 

It doesn’t have to be the local accountant. This will work with a friend of the investor, a former colleague, a nephew, a niece, a law firm, or simply a social contact, such as a golf or tennis partner. 

If you don’t get out much then sites like LinkedIn and Xing are great tools for discovering common connections. 

There are also sites like Crunchbase, AngelList, Gust, Angels Den, etc. that have profiles for investors made available once you’ve registered with them. 

In Australia, similar sites include the Australian Investment Network, AAAI,Melbourne Angels, and Sydney Angels. 

Even a simple Google search will often turn-up mutual connections. 

By researching investors online you are likely to see where they have worked in the past and with which businesses they have partnered. 

Chances are you know someone, who knows someone, who knows someone. All you need is a link. The world isn’t that big anymore (just think 6 degrees of Kevin Bacon when you’re prospecting). 

Any common ground with your targeted investor can allow you to borrow sufficient credibility. 

Finding and then referencing this common ground at the outset of your initial conversation is essential to your prospects of starting a relationship and securing investment. 

Time for some feedback. 

We’re keen to hear from entrepreneurs who are going through the process of raising seed or expansion funding for their startup, specifically: 

1. How are you going about finding investors?
2. Are you using a common link to establish credibility? 
   
   

Please comment in the field below. We want to hear from those who’ve been there, done that, in the past as well. 

Happy hunting and don’t forget to establish your CREDIBILITY before you start talking to investors. 

Have you DOWNLOADED your FREE REPORT yet? “6 Capital Raising Myths Exposed”. CLICK HERE to fix that.

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