Written by Oz Hassine, Investment Analyst, Flashpoint Venture Capital
A highly underrated but critical skill for any founder in today’s competitive ecosystem is their ability to fundraise. Knowing how to efficiently raise the right capital at the right time facilitates better execution of the founders’ vision and allows them to focus on product and business goals.
Fundraising looks and operates very differently across various stages of a startup’s lifecycle, but often the most difficult and intimidating is raising your first check. In this article, we identify key points which may help founders find their first investment and provide resources connecting them to angel investors in Israel relevant to their current stage and industry.
- Accumulate assets: Investors are investing in your team’s expertise, credibility and vision rather than products at very early stages. As such, it’s critical to have the right founders, accelerators and network for your first investment.
- Know different investors criteria and theses: Although approaching VCs is tempting, angel investors and accelerator grants are often more efficient at the very first stage.
- Leverage the right resources to find relevant investors: Use Flashpoint’s list of active angel investors and filter by domain. Alternatively, look at similar companies and who were their early investors and advisors.
- Fine tune your approach: Using templated emails and pitches is a good start, but when it comes to reaching out to investors you will have a better conversion rate by reaching out individually with personalization and specificity.
- Network: Networking is a vital tool to any successful business. There are many ways to do so — networking events, leveraging social media, but for young startups a great way to network is through pitch competitions and demo days. For example, Flashpoint’s Summer SaaS competition on September 2nd allows 25 startups to meet over 50 VC firms. You can apply here to start growing your network.
Investors and founders are both very busy! Optimizing your meetings opens up a lot of time for focusing on your actual product and business.
The main idea is to accumulate and showcase tangible assets to build a narrative and credibility to sell your vision. At a very early stage, this will likely be your founding team, early hires, and associations with quality accelerators and advisors.
Founders with complementary skill sets, relevant experiences and backgrounds, and existing relationships stand out the most. Investors want to see proof that founders and early management teams have experience and success in working together. Furthermore, being able to onboard the right people is a valuable source of social proof. If you can convince a Rockstar technical operator to join your team, it means you were able to convince a domain leader of your vision.
This is particularly important at the product development stage because at this stage startups don’t have the luxury of providing validation through traction and growth or financial metrics. Product market fit is also harder to ascertain and display.
As such, at this stage, investors tend to use criteria which are more concerned with investing in people and their vision rather than products themselves. At the same time, some good strategies for showcasing product-market fit are signing first clients (even if at a loss), and quoting a strong pipeline of potential clients willing to buy the product when ready.
Similarly, applying to quality accelerators has huge potential upside for a startup at an early stage. Joining a relevant accelerator connects startups with leading advisors, mentors and industry connection and guidance which adds significant credibility and belief in the execution of the founder’s vision. This also serves as further social validation and is parallel to sales traction because it is an excellent proxy establishing that your product is addressing a real and widespread pain point.
In the modern startup ecosystem, there are many types of investors and each have their own criteria and focus. While Venture Capital is an alluring and important element of the system, for very early stage companies they may not be the most relevant source of investment. It is also very tempting for many founders to apply to VCs because it is relatively easy to do so. VCs tend to have application portals on their websites and intuitive channels.
However, this is not always efficient. Idea stage companies and startups in product development are often not relevant for most VC investors and entrepreneurs fixated on them end up doing easy but ineffective tasks. Further, approaching VCs too early may burn your opportunity for funding at a later, more appropriate stage. VC investors tend to prefer meeting fresh companies rather than revisiting prior candidates unless there is a particularly compelling reason to do so.
Don’t get stuck in this unfortunate cycle.
As such, early stage companies should instead approach angel investors. These investors are specifically targeting early stage companies and therefore such companies are aligned with their thesis. If approaching VCs, ensure to approach ones which have a clear thesis focused on early stage. Multi-stage VCs tend to focus on Seed and later. Further, companies should try to identify active angel investors in their domain as they are both more likely to invest, but also provide useful guidance and work as your main advocates and champions for later stages.
Finding relevant angel investors is typically harder and relies on personal networks. However, at Flashpoint we have started to assemble a list of active angel investors in Israel. While not exhaustive, it is a useful starting point and can be found here.
There are a few important considerations in approaching potential investors. It is especially important to be cognizant and respectful of people’s time and effort. Using a templated email to reach out is fine, but reach out individually and ideally personalize each note. It is also critical to verify emails (you can use hunter.io’s verification tool), else too many rebounds will result in your emails being sent to spam by default.
Your pitch deck is particularly important at this stage. The most important elements are: a clear and simple-to-understand value proposition, problem identified, solution proposed, team and advisor description, competitor landscape (modest), market sizing, and early traction information. Try to make your presentation fit a narrative and flow like a story.
Attend events and contests to highlight your company and stand out further. These serve as funding opportunities in both the short and longer term, and develop your competitive edge through associated credibility.
Israel’s strong entrepreneurship ecosystem translates into many quality events, and startups should attend multiple ones. For instance, right now, we have opened applications to Flashpoint’s Summer SaaS event which is an opportunity to network with over 50 VCs and other investors. You can find the application link here and we hope to see you there!