How to build relationships with seed investors
Raising investment for your start-up is more than a simple transaction of funds. It’s all about building relationships with the right people. Find alignment with your funders and it will be a smoother, more fulfilling process all round.
Admittedly, this approach can take time initially. You’ll need to research a lot of potential investors before narrowing it down, then find common ground and nurture the relationship. But it’s a process that will pay off in the long run, because you’re ultimately looking to connect with like-minded funders who believe in what you do.
Here’s our guide to building meaningful relationships with potential funders.
1. Take your time
Just as friendships take time to develop, the relationships you build slowly with investors are usually the strongest.
The number one rule here is don’t wait until you’re ready to raise. Start building relationships early so that you’ve laid a good foundation before you go in for the big ask. Reach out to investors by inviting them for coffee and a chat, and build a rapport from there.
Remember that angel investors are human; the most common barrier from a founder’s perspective is that they think they’ll get immediately rejected. That might happen – but often, they genuinely want to help.
2. Ask them for something other than money
Put yourself in the funder’s shoes. They get endless messages asking for cash, so requesting 15 minutes of their time to get their help is much more powerful. You can drop in the fundraiser later in the relationship, after you’ve broken the ice.
The key to doing this properly is knowing what you want from them. If you’re clear about how they can help you, they can give you the best answer or point you in the right direction. Not only that, you’re demonstrating your ability to get the most out of people without wasting their time.
Use these examples to get you thinking about the ways that potential investors can help you:
Support with your business plan
Insights on the sector
Input on a project you’re working on
Contribute to a piece of content you’ve got planned
Mentoring you or suggesting other suitable mentors in their network
3. Look for common ground
Finding the right investor won’t happen immediately – you’ll need to kiss lots of frogs to meet your prince.
Start wide, with a long list of potential investors to target. Then do your research to narrow it down to those who could be a good fit. If sustainability is a core principle for you, look for funders who have invested in sustainable businesses before, for example.
Investors often look for start-ups that share the same aspirations as them. This is especially important in the early stages when your business may not have enough traction or proof points as a hook.
By finding alignment you can make the relationship much more personal to the investor. They are more likely to take you seriously if you’re clear about what you can both gain from the arrangement.
4. How to find investors
Use as many different avenues as possible to cast the net wide when drawing up your long list of potential investors. Try these as starting points:
Your personal network. There may not be anyone immediately obvious, but once you start putting the word out, you might be surprised at the wider connections you have access to
LinkedIn
Lists of angels on Twitter and various websites
Regional angel networks, listed on the UK Business Angels Association website
Look at Crunchbase, Companies House and local media to gather information about other companies that have raised funds
Attend local business meet-ups to talk to other businesses about investors that they have approached
Enter pitching competitions like The Pitch and SetSquared, which include various initiatives to network with investors
List your business on the Ethical Equity platform, which allows you to connect with like-minded investors through a bespoke ethical framework
5. Understand how investors get tax relief through government schemes
Most investors will want to take advantage of one of the government’s venture capitalist schemes to benefit from the tax relief they offer. It’s important to enter conversations about funding having read and understood how these apply to your business.
There are several schemes designed to help small or medium-sized companies grow by attracting investment. These include:
The Seed Enterprise Investment Scheme (SEIS) – A great option for early-stage start-ups that are less than two years' old. You should have fewer than 25 employees and no more than £200,000 in gross assets.
The Enterprise Investment Scheme (EIS) – For more established companies with up to 250 employees that have been operating for no more than seven years.
Social Investment Tax Relief (SITR) – For social enterprises with up to 250 employees.
Educate yourself – and the funder
Research by CoFounder found that 79% of angel investors are White British, so it can be difficult for founders from minority backgrounds to find like-minded angels who relate to their business idea.
With very few investors from diverse backgrounds, it means there’s more need to be creative when building your network. You may need to reach out beyond the realms of established angels and venture capitalists (VCs) and connect with high-net-worth individuals from similar backgrounds.
This can be a harder sell as these individuals are likely to be investing elsewhere, in real estate for example. They may not have even heard of venture capitalist schemes or appreciate that there are a range of tax benefits on offer.
So the education is two-fold. First, you need to educate yourself – and then you need to package this into a neat pitch to educate potential investors and sell the tax schemes.
Get ready to raise
It’s never too soon to start building relationships with potential investors. Lay the foundations early by starting a conversation and finding common ground, and it will put you in a stronger position by the time you’re ready to raise.
Remember to listen to their needs too. Use the relationship-building stage to find out what they want to get from the businesses they invest in. Then by the time you’re ready to pitch, you’ll be able to pre-empt any concerns and address them head on.
