Author: Eller Mallchok, Jumpstart Foundry Managing Director
Acquiring the right investors for your healthcare startup is absolutely key to the overall success and potential outcome of your company. But identifying and ultimately bringing on the ‘right’ investors can be quite a rigorous process. So, before I dive into finding the ‘right’ investor, I want to take a minute to set the stage, both figuratively and literally, on how entrepreneurs should approach early-stage fundraising.
Be realistic about the stage of your company and know your investor’s investment stage.
When you are deep in the throes of early-stage fundraising… I mean like when you only have a few months of runway left, or when you’re trying to not miss payroll or fundraising to show market validation (AKA, getting some revenue in the door) NEVER waste time talking to investors that don’t invest at your stage. I can’t tell you how many times I’ve had to tell portfolio companies to stop taking meetings with investors that I know will never invest until that company has at least $2M ARR (annual recurring revenue) which that company can’t achieve without a bit of funding. You’re wasting your time.
Side note: I am all for the ‘fundraising when you’re not actually fundraising ‘ approach. Talk to investors at a later stage once you’ve already secured some early-stage funds. One, they’ll be impressed that you’re not begging them for money and two, they’ll put you on their ‘watch-list’. Don’t spend too much time or energy on these investors, but keep them informed about your successes. Investors have serious FOMO. When things are going well and the option to invest isn’t even on the table, they have the tendency to want it even more.
Time is your most precious resource when it comes to early-stage fundraising and you should be thoughtful & precise when deciding who to spend that time with.
Below are a few tips on how to be meticulous when looking for early-stage investors:
1) Do your own thorough due-diligence
Don’t lie. You’ve definitely googled “Early-Stage Healthcare Investors.” That’s actually a great first step! I googled it too and found Dream.it Venture’s “Comprehensive List of Healthcare Venture Capital Firms.” However, finding the ‘right’ investor should start like any good research project. Generate a strong set of data and make sure that the data is accurate. Things to include in your database (besides the basics like contact info & website)…
- Fund Size: This will dictate the size check they write
- Fund Age: If the investor is at the start of a fund, they’ll be more active and open to riskier deals. If they are towards the end of their fund they will be pickier and ‘safer’ with their bets.
- Management Team Background: What is the experience of the fund’s management team? Do they have relevant or strategic backgrounds that could be useful for your business?
- Similar Portfolio Companies: Pick out a few companies and try to find press releases or articles announcing their raise. This will give you an idea of check size, the investor’s preferred stage of deal, management teams the investor is attracted to, etc.
2) Find a warm connection to the investor
Riffing off of my ‘research deals they’ve done in the past’ bit, don’t hesitate reaching out to the management team of an investor’s portfolio company. Ask that team what their experience has been working with that specific investor, what the negotiation process was like, what the investor is like outside the boardroom… You want to make sure that you would enjoy working with your investor and that they share similar values as you. If you like what you hear, ask them for an introduction. Warm connections are the best, especially if they’re made by someone who the investor knows well or someone whose judgement you trust.
3) When in doubt, HIT ‘EM BETWEEN THE EYES!
You can write a VERY SHORT, ‘hit ‘em between the eyes’ message. When warm connections are not available to you, be concise and throw a good punch. The absolutely worst thing you can do is to send a cold email or LinkedIn message to an investor with a 500-word essay on what you do with a laundry list of your accomplishments, and “Oh, my 15-page slide deck is attached.” If you need help creating an effective pitch deck, try using our template to get started.
Your first email to an investor that doesn’t know you or your company should be LESS THAN 100 WORDS. Make those words count and reference why you think they might be interested in you. (Hint: reference a company in their portfolio that is similar to you) Showing that you’ve done your due diligence and can be straightforward is very impressive and should warrant a response from an investor.
4) Start the process early
Fundraising will always take longer than you expect. The sooner you start, the more time you have to be thoughtful & precise in your work. Investors can see through sloppy work and it doesn’t reflect well. Best of luck out there and keep your head up. The right investor is out there—It may just take a little extra digging to find them!
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