What should founders keep in mind when approaching investors?

Navigating the funding world as a first-time founder can be overwhelming. Stories abound about all the dos and don’ts of approaching investors. So what practical tips can founders looking to raise some funding follow?

Local investors and other stakeholders talked about all things investments at the first Tech Talks event hosted by the City of Philadelphia’s Department of Commerce. Here are four tips for beginners from these investment pros.

1. Build a strong relationship with investors

Margaret Bacheler, director of educational initiatives for the Angel Capital Association, said this is a relationship-oriented business, so it’s important to start one with an investor on the right foot. Rather than cold messaging or cold calling, take advantage of events and opportunities to get in front of the right investors, she said.

“The average angel deal right now is taking, believe it or not, eight to 10 years for an exit,” said Bacheler. “So this is a long-term relationship that we’re seeing with founders.”

Kevin Baumlin, chief medical affairs officer for the University City Science Center, specifically mentioned his employer’s Venture Cafe event as a way to get to know people and start a relationship with a potential investor. Bacheler also suggested signing up for Robin Hood Ventures’ office hours.

Bacheler added that part of building a strong relationship is picking the right investors to approach, so it’s important to research the types of companies an investment group invests in.

2. Go through the customer discovery process beforehand

Baumlin said it is important to go through the customer discovery process before approaching investors. He said founders have to take the time to explore and understand exactly what their product is meant to do.

“You have to go out and do it and meet people and ask questions and understand what your potential market looks like,” he said.

Margaret Berger Bradley, VP of strategic initiatives for Ben Franklin Technology Partners of Southeastern Pennsylvania, said investors want to be clear on whether your product is an idea or an opportunity.

“You need to know that there’s a product that somebody wants,” said Bradley.

3. Be realistic about how much money you need

Blessy Thomas, a partner at the Innovate Capital Growth Fund, said she finds that a lot of founders underestimate the amount of funding they require. She said investors do not want to give someone enough money to just fix whatever situation they are dealing with at the time because that does not lead to more growth.

“You really need to have a grasp on what and how much financing you need to actually execute the strategy. And then how do you build that capital?” said Thomas. “An investor knows that there’s going to be all kinds of surprises, regardless [of] how much you plan that’s gonna happen. So you need to have some buffer.”

Sometimes investors can help founders figure that out, but they should come in with an open mind to accept the investor’s feedback.

4. Be open about your struggles

Thomas said that her organization is always looking for a strong management team, especially one who understands the company’s gaps.

If a founder is not calling out an existing problem that investors can see, then that investor won’t have confidence that they will make better decisions in the future.

“It’s just as much numbers as it is, how are you leading the organization? How are you managing the business? Are you willing to make hard calls?” she said.