Build Investor Relationships Before You Need Them

There’s an old adage that the best time for entrepreneurs to raise money is when they don’t need it. If an entrepreneur does need to raise money, and doesn’t already have relationships with investors, it’s often too late. Investors would much rather build relationships with entrepreneurs and potential entrepreneurs without the undercurrent that the only reason they’re talking is because the entrepreneur wants money now. Think about it — when someone approaches you wanting something, does that help or hinder the rapport-building process?

Here are a few thoughts on building relationships with investors before you need them:

  • Most investors are in the business of having a large rolodex as that’s how they add value to their portfolio companies, so they want to continually meet talented people
  • Investors want to see entrepreneurs outline a vision and then regularly meet their goals well in advance of fundraising discussions, and this often takes months, if not years (see Invest in Lines, Not Dots)
  • Entrepreneurs that haven’t formally started a company yet would do well to share with potential investors areas of interest and plans
  • Entrepreneurs that want to build relationships with investors can start by finding a qualified prospect for a portfolio company prior to meeting so as to show value and pay it forward

Entrepreneurs need to know that the fundraising process for a business is an inefficient process that requires hundreds of conversations and often doesn’t result in raising money. One way to significantly increase the chance of success is to build investor relationships well in advance of asking for money.

What else? What are some other thoughts on building investor relationships before raising money?

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