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Cold Investor Outreach is an Increasingly Viable Way to Raise Capital
It's by no means a slam dunk, but more investors are open to & encouraging cold outreach (#17)
Historically, venture capital has been an exclusive club. That still remains true. But it is changing. Too slowly for some, but it’s happening.
Raising capital is very difficult, and many are unsuccessful. Most investors (including angel investors & VCs) invest in 1-2% of the deals they see. They reject a lot more than they fund, and, they’re still wrong most of the time.
You could argue that the whole model is insane, but venture capital has funded many of the companies that we benefit from every single day. People are getting out the pitchforks against a lot of these companies (fair enough), but there’s no denying that Apple, Google, Meta/Facebook, Salesforce, Amazon, etc. have changed our lives (and I would say, for the most part, for the better.)
Although I don’t personally invest in biotech or medical companies, there are many examples of venture-backed businesses in these industries that have literally saved lives. (I know some of these companies price gauge horribly, but still, they might not have even existed without venture capital.) Examples include: Moderna, Gilead Sciences, Genentech, Vertex Pharmaceuticals, Amgen.
Venture capital has an important role to play in the creation and scaling of new businesses.
But the “insider’s club” model of venture capital is a problem.
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The need for warm introductions
Typically when you go to raise money, you’ll be told to get warm introductions to investors. In fact, some will suggest that this is the only way to successfully raise capital. It’s not, but it remains the #1 strategy. You might not like it, but it’s the truth.
So you will need to figure out if you can get warm introductions.
If you have existing investors, go to them first. If your existing investors are unwilling to provide warm introductions, it’s not a good sign.
Then network through other founders. In my experience founders are supportive of other founders. If you can build relationships with founders (online or offline) you have a chance of getting warm introductions that way.
Ultimately, warm introductions are limiting because they’re available to the few and not the many. They definitely create biases for investors who may see many deals but still only invest in the few where the founders come from a small pool of people who all know each other.
And that’s what brings us to cold outreach.
Is cold outreach bad?
Many investors are open to cold outreach, and my sense is more and more of them are taking cold outreach seriously.
Awhile ago I tweeted out looking to have a conversation with others about cold outreach:
Quite a few investors put their hand up and said “I welcome cold outreach.” The discussion about cold outreach, how to do it well, etc. from that tweet inspired this article.
Cold outreach isn’t bad. I would suggest doing it even if a VC firm doesn’t make it easy or obvious. It does take real work to do well.
At Highline Beta, we get a fair bit of cold outreach. I don’t respond to everything, but I do respond when:
The message is genuinely personalized
The sender makes it clear they understand what we invest in (i.e. there’s no crypto companies on our portfolio page, so clearly we don’t invest in crypto.)
It’s clear the sender read our site.
This is what it says at the top of our venture capital page:
We turn corporate challenges into investable opportunities, investing in startups we build through our studio, or partner with through our accelerators. We thrive at the earliest stages, often writing the first check.
Unfortunately, most don’t read this. I get cold outreach from founders looking to raise a $2M seed round, or even a $5M Series A.
If you look at our portfolio you’d see that 90%+ of it is Canadian. We only invest in Canada and a bit in the U.S.
Most of the inbound we get is completely outside of our investment parameters. And often when I reply to let them know that’s the case, founders push back any way. I’m all for founder chutzpah, but there’s a limit.
Bottomline: Cold outreach is completely fine, but you have to do your homework.
How can you succeed at doing cold outreach?
Here’s an overview of what you need to do:
1. Do your research
Founders don’t do enough research. And I get it. This can take a lot of work. But if you don’t do your research, you’re not going to get good results on cold outreach.
Setup an Investor Tracker / CRM: First thing you can do is setup a basic tool to track investors. That way you can start putting all of their information into the tool, and sorting / prioritizing after.
Here’s an Investor Tracker / CRM you can use. It’s a straightforward Google Sheet; feel free to copy/download, do with it as you see fit. I hope it helps get you started!
Find the Right Investors: You will probably have to reach out to 100+ investors to raise your financing round, and that’s true with warm intros and cold outreach. But be at least somewhat judicious about who you reach out to. The key things you need to pay attention to:
Investment Thesis: What does the investor actually invest in? Many have published the verticals/industries they invest in. Some have detailed investment theses you can read. Don’t pitch a B2B SaaS investor on a Web3 play. Don’t pitch a consumer-centric investor with a B2B enterprise software solution. This is probably the biggest mistake I see consistently with cold outreach.
Investment Stage: Do they invest at the stage you’re at? If not, don’t bother.
Check Size: How much do they invest? Sometimes stage definitions are murky (i.e. What’s pre-seed vs. seed vs. seed+/seed extension, etc.) but check sizes aren’t fuzzy. Investors invest specific amounts of money and often the range isn’t huge.
Target Metrics: Some investors will be explicit about the target metrics they’re looking for; i.e. they only invest when you hit $1M ARR. If you’re well below that, an investor that only looks at deals at $1M ARR will ignore you.
Fund Lifecycle: When a VC closes a new fund they typically deploy the capital within 3-4 years. If they’re in year seven of their fund, they are likely doubling down on their winners and harvesting returns, not doing new deals. It’s not hard to find this information. For angel investors, rolling funds, SPVs (special purpose vehicles) or syndicates, the lifecycle doesn’t matter, but you do want to make sure they are deploying capital. You do get the occasional person who claims they’re an investor but hasn’t invested in years.
Finally, since we’re talking about cold outreach, you should figure out if they’re open to cold outreach or not. If you don’t know, you can try reaching out to them on Twitter or LinkedIn and asking.
The Investor Tracker / CRM has a tab with a resource list for finding investors. It won’t include every investor out there, and I didn’t fact check the data, but it should give you a head start.
Here’s a starting place for you. These investors all responded to me about their openness to cold outreach. Note: Some of these investors have intake forms on their website—if they do, use those!
Jenny Fielding, Managing Partner at The Fund Global
Matt Cohen, Managing Partner at Ripple Ventures
Riley C. Evans, Senior Associate at Thomson Reuters Ventures
Rahul Chaudhary, Angel investor
Andrew Gluck, Early stage VC
Melinda Chu, DNA Capital
Dani Pico, Director of Community at Forum Ventures
Matt Hottle, Founder at Redhawk
Zecca Lehn, GP at Responsibly Ventures
Mike Walsh, Structure VC
Ari Newman, Co-Founder & Managing Director at Massive VC
JJ Kasper, Founder at Blue Collective
2. Personalize the email
Tailor the email to the investor's interests and include a personalized greeting. Consider mentioning a relevant or adjacent portfolio company they’ve invested in.
3. Keep it concise
The email should be short, no longer than 60 seconds to read, and easy to scan.
No giant paragraphs or blobs of text
4. Lead with value
The first sentence of the email should clearly explain the problem being solved and the value proposition of the company.
5. Use a strong subject line
The subject line should be attention grabbing and clearly describe the company / communicate its value proposition.
Here’s an example:
[Company Name] raising [$X] - [Description of Company]
(h/t Scott Stevenson, Co-Founder & CEO at Spellbook, AI-powered legal automation)
Here’s another example:
[Company Name] - [Location], [Brief Description], [Traction Metric], raising [Amount] - “UK-based, B2B SaaS, $1M ARR, raising $5M”
(h/t Elena Mazhuhua, Investment Director at Flyer One Ventures)
Seed - [Company Name] (profitable energy management platform integrated with end-user base of over 60,000 homes)
What’s interesting is that the email subject line highlights traction. Subject lines usually should be short, but if you can include a key metric, do it.
Seed+ - Company X (1.2M in revenue and 150% YoY 2022 growth).
Company X: Minority-focused Fintech | 40% MoM | Seed+ | $8T Untapped
You can read through the full Twitter discussion (which breaks off into conversations about how to do cold outreach, doing research and more):
6. Attach a pitch deck
Include a pitch deck upfront, using a common format that’s easy to view.
This is a bit controversial. Some people will tell you not to include the pitch deck right away, but to hold onto it if there’s interest. I would recommend sending it.
You may decide to send a lightweight version (i.e. without every detail about the company), or a 1-2 page executive summary—but generally I would suggest sending something for the investor to review (b/c the email itself will be too short.)
Feel free to use Docsend, but I wouldn’t hesitate to send a PDF either.
7. Have a clear call-to-action
The goal of the email is to set up a one-on-one conversation, so include a clear and simple call-to-action.
If you have a Calendly link, feel free to use it, but I would suggest making it clear you’re open to booking in other ways as well; e.g. “I’m sharing my calendar to make it convenient for you to book time with me. But I’d be happy to use your Calendly link or schedule separately.”
Unfortunately, some folks might find the calendar link presumptuous (and you can A/B test this too.)
8. Proofread the email
This isn’t the time for mistakes. Triple check for spelling or grammatical errors.
Cold outreach examples
Here are a couple examples that might help you.
From Pavel Gvay:
Shizune, an SF-based SaaS platform that helps startup founders get investor meetings by automating investor research and outreach. Our progress:
$90k in pre-orders growing at a 100% MoM rate.
Launched the MVP two days ago (Nov 2).
Pavel (CEO) — founded and scaled a B2B SaaS company to $200k ARR, sold it in Feb.
Vladislav (CTO) — engineering team lead with 8 years of experience.
We're raising a $2M pre-seed round to hit the $20k MRR milestone in 9 months. Our raise is moving much faster than expected and we have $500K committed so far after two weeks.
From an anonymous founder (who shared this with me):
Chronic obstructive pulmonary disease (COPD) affects 24 million Americans each year, causing 700,000 hospitalizations and generating $50 billion in medical expenses. A need exists for better and more valuable respiratory treatment, which we are aiming to deliver to the market.
My name is [Name] and I am [Title/Role] at [Company Name]. For your reference, [Company Name] is an [location]-based medical device startup developing a respiratory assist device to treat COPD. We are gaining momentum and are excited to bring this device to market.
I would love to set up a meeting to discuss our company with you. Are you available later this week?
Is the future of cold outreach actually automated investor matching?
A newer trend that’s emerging is automated matching of startups and investors. I can’t imagine this will eliminate the need for cold outreach (or warm intros), but it’s interesting to see more investors supporting this approach. The sense is that it can reduce bias in the process.
Along with automated startup-investor matching, we’re seeing more tools designed to help startups and investors connect.
I think both automated matching tools and introduction tools/databases are both welcome additions to helping founders that aren’t super connected get access to investors. Here’s a list to get you started:
Side note: One founder I spoke with said she’s reached out to ~30 investors on Seedscout, resulting in 20% moving forward to a next step. That’s a very good hit rate for cold outreach.
SeedChecks: A group of 16 A-list angel and VC investors have gotten together to launch this site, where anyone can submit their deck.
Startup-Investor Matching Tool: Automated matching between startups and investors. Apparently since May 2020 the tool has facilitated 4k+ intros and 60 checks have been written. (started by Lolita Taub)
Resources for doing cold outreach well
Here are a few resources I’ve compiled to dig further into how to do cold outreach well:
Getting the Meeting (from the book Raising Venture Capital)
How to write cold emails to investors - lessons from 30 VCs - by Timo Sarkka
The three bullet forwardable intro - by Mat Sherman
How to send the perfect cold email to an investor - by Bill Wilson
How to cold email investors? - by Michael Seibel
Include cold outreach in your fundraising plans
You should do cold outreach. There are a lot of investors out there including angels, angel groups, solo GPs, bigger funds, corporate VC, etc. Even the most connected people will have a hard time reaching all the potential, quality investors they need to raise a round.
I’m encouraged by the increasing willingness of investors to accept cold outreach and make it easier for founders, through being open and accessible on platforms such as Twitter and LinkedIn, to including forms on their websites, and participating in matching platforms.
Founders have an opportunity to reach more investors than ever before, build relationships and overcome some of the challenges facing the fundraising model. It’ll never be easy, but I do think things are trending positively.