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How to build an investment target list
Looking for potential VCs to work with takes time and effort.
Many founders think they can spend an hour surfing the web while they drink their morning espresso, and hey presto!
They’re ready to start emailing pitch decks out.
Unfortunately, this approach doesn’t work in real life. However, the good news is if you plan ahead, you can put together a list of prospective VCs reasonably easily.
Here’s how to build your investor target list.
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The golden rule: start early
You should be researching and vetting your VC hit list as soon as possible, ideally when your previous investment lands in your bank account.
That way, you’ve got a good list of prospective investors lined up, and you’re not running around like a headless chicken when it’s time to start pitching.
If you want to know more about the fundraising process, this guide should give you some good pointers.
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If you build it, they will come
Think of building your investment target list like you would a list of sales leads. You wouldn’t throw every VC company you heard of on your list and reach out to all of them.
Instead, you need to qualify your prospective VCs.
There are over 70,000 VC companies out there, and the truth is, the overwhelming majority of them won’t be the right fit for your scaleup. Some focus on specific industries or stages of funding, while others only work with companies in particular regions.
It pays to do your homework. That way, you don’t waste time pitching to VCs that aren’t a good match.
Ask yourself the following questions when finding VCs to work with:
Are they involved in the size and stage of funding you need?
Do they have interest and experience in your sector?
What can they offer you apart from just money?
Are there any competing companies in their portfolio? Typically you should avoid any VCs who have invested in your rivals
Do they have a good reputation? You want to work with a VC that will lead you to success and not just sit on the sidelines
Is the investing partner someone you could get on with? While they won’t become your BFF, you want to work with someone who isn’t an arsehole
What is their geographic focus?
One thing to bear in mind is that if you’re not based in the US or China, after Series A you’ll probably have to look internationally as well as locally to find VCs to work with. Many of these later stage VCs work with international businesses, so discovering them shouldn’t be a problem, but you’ll have to consider different time zones for meetings and market norms.
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How to build your VC list
There isn’t a hard and fast way to build a list – different scaleups have different approaches. However, this is how I work when I want to put together a list of investors. YMMV.
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Step 0: Know your objectives
Before you begin, you need to know what your fundraising objectives are.
How much do you want to raise? Think about not what’s just ideal, but the minimum raise you need for fundraising to be worthwhile
Who would be your ideal VC partner?
What do you need from your investors apart from money? For example, expertise in your sector? Connections to other businesses?
This will help you as you move on to the next step.
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Step 1: Write down your ‘Big 10’ criteria
It’s time to put together your qualification criteria – what are you looking for from an investor?
My five primary criteria are must-haves, while secondary criteria are important to factor in.
Primary criteria
Investor activity level
Round size
Round stage
Sector focus
Lead rounds
Secondary criteria
Geographic focus
Competitor investments
Brand quality
Existing relationship
Board or other recommendation
This doesn’t have to be 100% accurate- your needs may change as you move through the fundraising journey. It’s crucial to have buy-in from your board though – you don’t want to be on different wavelengths.
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Step 2: Compile your master VC list
Now you have your criteria in place, it’s time to start looking for VCs.
Where are the best places to find VCs? There are a range of databases out there that vary in quality. In my experience, the paid-for databases are better than the free ones.
Often a VC company will pop up on social media or a news site like Forbes or Founder. This can be a useful source of info, but you will have to do some sleuthing.
Most investors, founders and pro-fundraisers have their own lists of VCs, but word of warning – many guard their lists ferociously. Don’t be surprised if they tell you to get stuffed.
I’ve got a list of sources on my website if you want to take a look. Don’t say I don’t spoil you!
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Step 3: Filter on primary criteria
The next step is to assess your VCs based on the primary criteria you put together in step one.
Rather than an outright ‘yes’ or ‘no,’ grade your VCs on a scale of 5 to 0. Five is ‘we’d love to work with this investor,’ and zero is ‘not a snowball’s chance in hell.’
Don’t delete any low-ranked VCs just yet – just bump them to the bottom of the pile. You may find something out that changes your mind about them later.
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Step 4: Filter on secondary criteria
After ranking your VCs using your primary criteria, it’s time to look at your secondary criteria. It may be that a middling VC is bumped up a level because they focus on your sector or haven’t invested in any of your competitors.
You should now be starting to build up a list of qualified VCs.
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Step 5: Break your VCs into ‘waves’
How many VCs will you need on your list? More than you might think. Typically you’ll need between 50 and 200 qualified investors on your list.
This will be enough to get you at least one or two term sheets.
When you’ve got your investors, you’ll need to sort them into three separate lists, called ‘waves.’
This is the order you’ll reach out to them in, so you’ll start with your first wave, and once you’ve exhausted this list, you’ll move on to wave two, and so on.
That way, you’re not only increasing the chances of getting a ‘yes’ from a company you’re itching to work with, but you’re making the process a lot more manageable.
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Step 6: Iterate until success
Your VC target leads list needs continuous tuning – it’s not something you can set and forget.
Tweak it, keep reviewing your leads and add new investors when you become aware of them.
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How to identify who to contact
When you’re pitching, you need to reach out to specific VC partners.
Again, think of pitching like sales. If you reach out to a generic email address or call reception asking to speak to the guy in charge of finance, you’re not going to get far.
There are people you can pay to get this contact information for you but honestly? It’s easier and cheaper to do it in-house.
You can:
Go on social media (LinkedIn is best)
Search the internet
Ask your board
Talk to other entrepreneurs and advisors
When you’ve got names, it’s time to ask around and see if anyone can get you an introduction.
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In summary: time to get qualifying
Compiling your VC target list may seem like a long hard slog, but the sense of satisfaction you get when it comes to fruition… well worth it!
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What's next? Pipeline CRM... not glamourous, but critical
Next time I’m looking at pipeline management – how to organise and track your fundraising efforts.
A stack of post-its and writing on your hand just doesn’t cut it when it comes to managing your prospective investment opportunities.