It stands to reason that each investor is different in the way they go about making their investment decisions, both in terms of time spent and the type of research conducted. One thing you want to figure out early in the courtship with an investor is how they go about making their investment decision. This best enables you to align your interactions with a broad group of investors to create proper momentum and a crescendo effect (see related post titled The Domino Effect of Fundraising). It sucks when you think you’ve got several investors lined up together only later to realize some of them were only half-way through their process.
As mentioned previously, the two key dimensions to understand are time and research. Let’s break them down:
Some investors can make a decision in a single 1 hour meeting while others need either a lot more time or have a process that usually involves multiple meetings. This might even vary with the same investor, depending on how close to their “strike zone” the specific opportunity is.
Some investors really care about market size while others want to dive into your financial projections or a product demo. For each major aspect of your business plan you’ll find investors that care deeply about it and others that don’t care much at all. Additionally, some investors will be comfortable getting most of their information directly from the founders while other investors will want to talk to industry analysts, customers and/or your prior investors.
The key is to find out how your investor prospects go about making their investment decisions, both in terms of time and research. Here are some example questions to use:
- Which aspects of a business plan do you typically like to dive deeper into?
- What is your typical timeline and process for making investment decisions?
- How much time do you typically like to spend with a company before making an investment decision?
But when should you do this? It depends. I wouldn’t spend 5 minutes of a short 30 minute intro meeting asking these questions. Instead, if the short meeting goes well, schedule a 1-2 hour follow-up to get into more details. In the follow-up meeting ask the first question above towards the beginning of the meeting and ask one of the time-related questions towards the end of the meeting. After the meeting, write down what you learned so that you don’t accidentally mix the investors up. You’re probably going to meet a lot of them before closing your round.
One more thing. If you want to find out how an investor prospect goes about making investment decisions, talk to other companies they have invested in. Just like doing a reference check on an employee prospect. And if the investor finds out you’re checking up on them, they should actually be impressed. I would.