How To Pitch Successfully to Investors for Follow-on Funding (Part 2)

This is part 2 of this series of articles: “How To Pitch Successfully to Investors for Follow-on Funding.”

Step 2: Based on the story you want to tell, work your network and identify the list of investors you’re after.

As a thousand articles on the web advise, do your research on potential investors before approaching them. The single most useful thing you can do is talk to the founders of companies your target investor funded – and, if you can find them, a couple of companies the investor passed on. Obvious as this may be, it is quite amazing how many startups still don’t find time to do this.

What is it you’re looking for? Apart from red flags on credibility and reputation, personal fit and such (always good to check!), you’re looking for a risk-return profile that fits the story you decided to pitch. A fund with financial engineering chops, large pool of deployable capital, and a few experienced investment bankers on board would fit the “Last Stop” scenario, but is unlikely to sit down with you for a detailed, multi-hour review of your conversion metrics or business processes necessary to assess a “Vitamin / Painkiller” or “Layered Cake” scenarios.

Conversely, smaller and higher-return oriented funds who would be able to support you in “More of the Same” and “Bump on the Road” scenarios might balk at higher investment quantum and non-business model specific risks involved in situations such as “Last Stop” or “Kill or be Killed” (see my first post for the definition of these terms). As most of the investors like to see as many deals as possible, it wouldn’t be straightforward to guess what it is they’re looking to fund from their web sites and public appearances. Strategies and levels of risk tolerance shift over time, so even portfolio data is sometimes misleading. But talking to portfolio companies and, in certain cases, to more junior members of the investment team (in the case of large institutional funds) tends to be rather revealing.

Once you have identified five or six names to talk to, see if you can apply a bit of fuzzy search methodology and don’t narrow down the list of people you engage too much. The digital space in Southeast Asia is sparsely populated on both sides – investors miss deal-flow in sectors they like, startups miss investors perceptive to their specific risks – so reaching out to a few investors who are an approximate match might produce interesting new results and angles. However, a roadshow one hundred meetings long is unlikely to be more effective than 10-15 meetings that are well-chosen.

A rule of thumb applied a lot by startups appears to be “Investor X is not investing at my stage; in my vertical; in my geography, but they have money so let’s pay them a visit”. While this is, yet again, understandable, we’d recommend a different approach, which is “will I actually learn something useful when Investor X says no to me?”, e.g. A snippet of market information? Some learning from investments in another market? A good introduction? Feedback on the story of my company? Will this be a “No” that might become “Yes” once there’s another “Yes” in my round?

To be continued. Stay tuned for Part 3 of this series, “How To Pitch Successfully to Investors for Follow-on Funding.”

This article was contributed by Mark and Dmitry from Digital Media Partners, where they get to see 600+ pitches a year from start-up companies all across Southeast Asia and where they’ve raised $14 million of follow-on funding for DMP portfolio companies over last two years. DMP is a venture capital firm specializing in emerging digital markets of Southeast East Asia and focused on funding regional expansion opportunities. Please let them know your thoughts on DMP’s Facebook, Linkedin or AngelList pages.