By Semil Shah
This post is intended for founders, and it is a difficult topic for me to write on, so please bear with me. First, this isn’t meant to paint the relationship between founders and investors as antagonistic. Second, this isn’t meant to be a declarative statement, as there are always exceptions — yet, what’s written below comes up in conversation all the time, so I felt compelled to share it more broadly.
This post is about the importance of “turf” in fundraising. In any sales negotiation, turf matters.
Private investors are in the business of sales. They’re selling money, their knowledge, their experience, their partners, their networks, and their signal to the market. Founders seek funding from these investors, and to do so, often try to broker warm introduction to them. They build connections with these investors, and it can take quite some time to schedule a meeting. More often than not, those initial meetings occur at the investor’s offices or at a place of the investor’s choosing. The investors also dictate the time. And, most founders fall in line, patiently waiting for the meeting, the location, and the time, momentarily forgetting that while investors are paid to scout opportunities and meet many people, the founder’s time is also scarce, and even though there’s a very small chance at funding, they continue on. No one can fault them.
When this comes up in conversation with a founder who is frustrated by the process, I try to respond with a version of the following:
“The brutal truth is that some people can just raise money by virtue of who they are or who they know. For the rest of us, the signaling mistakes founders often make can set an irreversible tone in short- or long-term negotiations. For instance, if a founder hunts down an investor, and then agrees to a meeting, shows up at the investor’s office or location of their choice, at a time of their choosing, the founder is sending an implicit signal that they want something the investor has. Yet, the psychology of the investor is to sell their wares — not to be sold to. Therefore, if the founder is able to pull it off, the best entry point to an investor is to be working on something that an investor hears about through multiple channels to the point where they come knock on the founder’s door — where they come to the founder’s turf.”
“Turf” is important. There is so much non-verbal signaling going on when a founder shows up on someone else’s turf.
What are the signs that you have inbound interest from an investor? They’ll meet you at a place of your choosing, at a time what works for you. They’ll likely be on time. They’ll likely be prepared. They’ll be more likely to help you with key intros to kickstart the relationship.
If this is true in many cases, then the job of the founder is to create the atmosphere in which an investor leverages their own network to get in front of you and your company. I realize most folks won’t be able to do this, but it’s a good goal to shoot for. So, what helps? Having a product that people are using, and/or having others espouse the greatness of a product. It’s not all about explosive growth, it can be unusual engagement, a unique design or technology — something that stands out in conversation. It can’t be engineered out of thin air, but it also presents founders with an interesting question — if people aren’t knocking down your door (or email inbox), could that be a signal the offering isn’t differentiated for the investment climate? Again, there will be exceptions, but it’s an intellectually honest question to ask.
Essentially, this type of approach — to create enough of a gravitational effect to attract investors — takes into account and exploits the motives and business model incentives facing institutional investors. I don’t want to discount the chance for serendipity in these meetings. But, I also want to lay out how I see “turf” factoring into these meetings, the nuanced signaling that happens as a result of who gets to control when and where a meeting occurs. As with anything related to leverage, the best position to be in is fielding inbound requests — by whatever means necessary. In such a competitive environment, it’s the best route to stand out.