Raising capital? Here’s how to build the ultimate investor pipeline

Raising capital is often the single most important challenge facing early-stage startup founders. It’s a daunting task, and it’s one that can keep founders awake at night, even when there’s plenty of VC money in the marketplace.

In 2021, global venture funding reached a whopping $643 billion, nearly doubling the amount invested in startups in the previous year. This figure is music to the ears of many founders, but veteran fundraisers know that getting even a small piece of that giant pie is easier said than done.

One way veterans help ensure success is to approach the fundraising process like the sales process – leveraging a well-planned and documented investor pipeline. Just as you would document and track your most relevant and qualified leads in your sales funnel, the same principle applies to your investor funnel.

This post will walk you through the steps to build the ultimate investor pipeline, optimize it for maximum efficiency and effectiveness, and successfully raise the capital you need.

Table of Contents

• Why A Pipeline Approach Works
• Build Your List of Investors
• Optimize Your Investor Pipeline
• Timing Your Fundraising Efforts
• Put Your Pipeline to Work
• Close the Deal

Why a Pipeline Approach Works

Treating your fundraising efforts like a sales process isn't just a clever analogy – it's a strategy that can significantly boost your chances of success. By adopting a pipeline approach, you're not just throwing darts in the dark; you're methodically working towards your funding goals.

The benefits of this approach are numerous:

• Organized outreach: Just as you wouldn't randomly contact potential customers, a pipeline helps you systematically reach out to investors. This ensures no promising lead falls through the cracks.
• Relationship management: Fundraising isn't a one-and-done deal. It's about building and nurturing relationships over time. A pipeline approach helps you track your interactions, making sure you're consistently engaging with potential investors.
• Progress tracking: With a well-maintained pipeline, you can easily visualize where each investor stands in the process. Are they at the initial outreach stage? Have they reviewed your pitch deck? Are they conducting due diligence? This bird's-eye view is invaluable for managing your fundraising efforts.
• Data-driven decisions: By treating fundraising like a sales process, you can gather data on what works and what doesn't. Which types of investors are most responsive? What pitch angles resonate best? This information helps you refine your approach over time.
• Efficient time management: Time is a founder's most precious resource. A pipeline helps you prioritize your efforts, focusing on the most promising leads rather than spreading yourself too thin.

Remember, investors are inundated with pitches. By managing your fundraising process like a well-oiled sales machine, you're not just raising capital – you're standing out from the crowd. You're demonstrating to potential investors that you're organized, methodical, and serious about your business. And in the world of startups, where execution is everything, that can make all the difference.

Step 1: Build Your List of Investors

Regardless of where you are in the development of your startup, it’s never too early to begin building connections with investors. As you meet new investors, keep all of their information organized in a central repository.

The contact list, spreadsheet, or database that you build will be the starting point for your investor pipeline.

Although your primary objective is to raise capital for your business, you should approach each investor relationship in a way that prioritizes human connection.

Don’t start your relationship with a new investor by trying to pitch your company or talk about your capital needs. You’ll have plenty of time to talk business later, but only if you’re first successful in presenting yourself as a likable person and a competent founder.

When you first meet with an investor or send an introduction, keep the following three goals at the top of your mind as the discussion unfolds.

• Build rapport. Of course, you need to have a solid business plan. However, many investors will be more interested in you as an individual than they are in your go-to-market strategy. Investors want to work with founders who are passionate, convicted, and relatable. You’ll get a chance to impress them with your financial model and business plan after they connect with you as a person.
• Show, don’t tell. When you do get around to talking about the details of your business, try to help investors envision the potential for growth your business has. Be as transparent as possible, and show them any details they want to see without compromising your intellectual property.
• Instill confidence and inspire curiosity. If an investor believes that you, as an individual, are capable of delivering on your vision, you’re well on your way to a successful raise. Present yourself as a confident and competent founder and investors will see your whole business in a positive light, and they will want to learn more.

Where Do You Find Investors?

The best place for you to find investors will depend partially on how much progress your business has made. These are some tried and true sources that you should explore:

• Connections via your personal networks
• Tools and websites that facilitate connections for founders, such as AngelList, Crunchbase, Pitchbook, and NFX Capital’s Signal.
• Networking functions – particularly events within your industry
• Investors who have shown interest in tangential companies

Don’t underestimate the connections you can make personally when you’re trying to raise capital. You don’t need to be a networking expert, you just need to be a friendly face with a clear message. 

Get as many investors into the top of your funnel as possible. Create as many relationships as possible. You never know when or where you might find a potential investor.

Step 2: Optimize Your Investor Pipeline

Next, build a spreadsheet to track the interest and progress of the investors in your pipeline. Staying organized is crucial, and there are several components you’ll need to capture.

Here’s a minimum set of fields you should include in your pipeline spreadsheet:

• The fund name and its size
• Where they’re located
• Ranking
• Ticket size
• Domain
• Name and title of investor
• Contact info of investor
• Type of interest (inbound/outbound)
• Reasons why this investor may be interested in your startup 
• Who can help you schedule a meeting
• Status of intro
• Additional notes 

When you’ve gathered the relevant information for each investor, start analyzing the criteria that might make one investor a better fit than another. Consider factors like geography, industry specialization, and deal sizes.

Here are a few example questions you might want to ask:

• Should I focus on local investors? Or does it make sense to reach out to investors across the country?
• Which investors have experience in my industry? What industry does each investor focus on? Are there parallels and connections to your industry?
• How much do I need to raise? Understanding the amount you need to raise can help you identify the best source – friends and family, angels, seed funds, or VCs.

Rank the investors on your list according to how they match your requirements for industry sector, geographic location, and the size of the investor’s typical deals. Try to build a list of 50-100 potential investors that would be a good match for your startup.

The more connections you make and capture in this way, the more meaningful relationships you will develop during your fundraising process. Every interaction you have with a potential investor is part of your pitch. Be thoughtful about every email and phone call along the way.

Step 3: Time Your Fundraising Efforts

Knowing when to kick off your fundraising efforts can mean the difference between securing the capital you need to fuel your growth and running out of runway before you can close a deal.

The importance of timing in fundraising can't be overstated. Start too early, and you might not have enough traction to attract serious investors. Start too late, and you could find yourself in a cash crunch, forced to accept unfavorable terms or, worse, unable to keep the lights on.

So, when should you start the fundraising process? While there's no one-size-fits-all answer, here are some guidelines based on your runway and growth stage:

• 18-24 months of runway: This is the ideal position. You have plenty of time to build relationships, demonstrate growth, and negotiate from a position of strength. Use this time to focus on building your business and start warming up potential investors.
• 12-18 months of runway: This is a good time to start seriously planning your raise. Begin reaching out to your network, updating your pitch deck, and scheduling initial meetings.
• 6-12 months of runway: If you're in this range, it's time to kick your fundraising efforts into high gear. Remember, the fundraising process often takes 3-6 months from start to finish.
• Less than 6 months of runway: You're in the danger zone. Fundraising should be your top priority, but be prepared for the possibility of having to accept less favorable terms due to time pressure.

Your growth stage also plays a crucial role in timing your raise:

• Pre-seed/Seed stage: Focus on demonstrating your idea's potential and your team's capability. You might start raising with just a prototype or MVP.
• Series A: Investors will be looking for product-market fit and early signs of scalability. Aim to show consistent growth and a clear path to profitability.
• Series B and beyond: At this stage, you should have a proven business model. Investors will expect to see strong revenue growth and a clear trajectory toward market leadership.

Remember, these are guidelines, not hard and fast rules. The best time to raise is when you can tell a compelling story backed by solid metrics and a clear vision for the future.

One final piece of advice: always be building relationships with potential investors, even when you're not actively raising. This ongoing dialogue will give you valuable insights into the market and ensure you're not starting from scratch when it's time to raise.

Step 4: Put Your Pipeline to Work

Many founders fall into the trap of accepting defeat prematurely. It’s not enough to connect with an investor, add their information to your pipeline, and then reach out once or twice a few weeks later.

Even if an investor doesn’t immediately respond to your first few attempts, they’re still a potential investor for your business. Some deals simply won’t unfold as quickly as you’d like.

Don’t eliminate leads from your pipeline based on a lack of immediate response. Remember, raising capital is not a fast or easy process. Keep the information flowing, and let your investors see that you are diligent and transparent about your business.

Stay in touch with every investor in your pipeline who doesn’t specifically request to be removed from your contact list. This consistent communication and connection is key to cultivating interest in your fundraising round.

• Send an update to potential investors every month. What have you accomplished? What milestones have you reached? How are your KPIs tracking? How has your financial forecast changed since last month? 
• Stay relevant and keep investors interested. Continue to hustle, whether or not you’re getting a positive signal from the investor. As they learn more about you and your startup, they may see something that sparks their interest. If they eventually connect with you based on that interest, use that to your advantage and accentuate those points in subsequent updates with relevant supporting data. 

When you continue to reach out with relevant updates, this shows investors that you’re a competent leader and you have a strong grasp of your business. You understand where you are today and you know where you’re going tomorrow.

When they start fundraising, most founders know they’ll need a well-crafted pitch deck, an investor-grade financial model, and a well-organized data room that includes all of their diligence information. But many founders overlook the need for a regular monthly update email that keeps potential investors informed and connected.

When you have all of these boxes checked, the biggest remaining challenge is understanding when you should start pitching. Don’t leave this question unanswered until the last minute – raising a round commonly takes up to 6 months, so you’ll need to time your raise to make sure you don’t run out of capital before you secure your new funding.

When you decide that it’s time to get started, begin reaching out to your highest-ranked investors and your warmest relationships. Schedule a pitch, communicate the opportunity and the timeline, and directly ask them if they’re interested.

Step 5: Close the Deal

When an investor does express interest in your opportunity, they’ll have a lot of questions about the details of your business model and growth plan. The best tool available for answering these questions is a solid financial model.

A model gives investors a window into the details of your operation. It lets you answer questions about the future with confidence and clarity, and it shows investors that you’ve spent the time to question and understand the most important aspects of your business.

Forecastr is an online service that lets you build a professional financial model quickly and easily. We match you up with a pair of our experienced analysts, who work alongside you to build a model that gives you new insights into your operation and sets you up for fundraising success. Reach out today to learn more.