How Can You Get Investors to Trust You?

The relationship between an entrepreneur and an investor is similar to that of a marriage — it depends on the twin values of honesty and trust. It usually takes a long time to build a trusting relationship with an investor thus, patience is key.

And just like a marriage, the entrepreneur-investor relationship sees its share of difficulties and requires commitment and effort to make it work over the long term. When the relationship between the entrepreneur and the investor is uncertain and feeble, it hampers the growth of the startup. Whereas, a strong investor-entrepreneur relationship helps improve chances of success.

The most difficult and the most critical step in launching a startup is raising funds, and it takes a long time, especially if you are a first-time entrepreneur. Investors prefer to fund startups of founders they know well, and relationship building can take a minimum of one year.

But, to have investors who will give great advice and believe in the ability of the founder to take the startup to greater heights, it is necessary to develop a good rapport with them.

Here’s how you, as a founder, can do it:

1. Ask for advice and listen carefully. Investors have dealt with many startups and have the necessary experience to help founders with their difficulties. Usually, they want to be actively associated with the startup and not just be viewed as “a bag of money.”

If a reputable investor has agreed to a meeting, it is usually because you have been referred to them by trusted people, or because the investor is interested in the industry and wants to hear what you have to say. You should take advantage of his/her expertise and wide business network by asking for feedback on things like your business pitch or strategy. You must listen carefully and determine if you should act on the advice. You should also convince the investor that you are serious about your startup and are willing to take concrete steps to grow the business.

In the words of Pitbull, “Ask for money, get advice. Ask for advice, get money twice.”

2. Attempt to build common relationships. It can take a long while for entrepreneurs to build trusting relationships with potential investors because the investment is, after all, a partnership between the entrepreneur and the investor. Trust cannot be built within a few meetings, especially if your aim is to ask for money. This process can, however, be sped up by establishing common relationships.

In other words, you should attempt to look for people in common with your target investor and approach them appropriately. A warm introduction by a mutual acquaintance on LinkedIn or Twitter can help things move forward quickly.

3. Be honest. Don’t spring bad news onto your investors during board meetings. Always keep them in the loop about everything that’s happening in the company, especially the setbacks, during your scheduled weekly or monthly updates. If you’re honest about the challenges you’re facing and frequently ask for advice, it goes a long way in building trust. You are also legally required to report to your investors when something goes south.

4. Research your investors well. Before you approach an investor, perform your due diligence. Answer questions like:

● Which industry is this investor interested in?

● At what stage of a startup does this investor typically invest in?

● How much money does this investor normally invest?

● Can this investor bring in other like-minded investors to the team?

Experienced founders recommend approaching associates at seed investing firms and VC firms instead of partners. Meeting and getting to know investors can easily take months, so it is important to be patient. When the investor knows you well and understands how you’re capable of delivering the outcomes you’ve promised, you may find him/her ready to make an investment.

There’s also a validation phenomenon that comes into play — investors like to know that they’re investing in a company that others have already displayed trust in. The first investment is always the hardest to net — from then onwards, the path gets easier.

5. Share updates about major events at your startup with target investors. If played well, this practice will keep your startup current in the minds of potential investors. Don’t send bulk emails as this is a sure shot way to get tagged as spam and ruin any future relationship with investors.

An update email could have the following format:

● A summary of the main achievements of the month — not longer than 2 sentences

● Details about the main achievements (if investors want to know more)

● A few KPIs (key performance indicators) that display the growth of your startup

● A section on progress vs. initial plan and what next steps will be taken

● Word asks clearly — how can the investor help you? Are you fundraising, launching, recruiting, or doing something else?

Appropriately spaced, bite-sized updates are good to keep investors interested, informed, and engaged with the progress of your startup.

6. Close the communication loop. If you do receive advice and feedback on your asks, do not forget to thank the investor, and keep him/her updated on your next steps. Did you implement the advice? If you did not, why? If you did, what happened next?

By completing this interaction, you enable the relationship to move forward.

There’s no secret strategy to getting funded.

There is no magical way to get the funds you want from an investor. Look at it from the perspective of the investor — he does not know you; he has no way of knowing if his investment in your startup is worthwhile; and he needs to evaluate not just your business strategy but also your personality to see if you have it in you to grow the business.

If you had a large sum of money in hand, would you give it to any stranger who made an impassioned plea for it? It pays to take the time to build mutual trust with investors because these efforts will reap benefits for years to come.

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