Know Your Investor’s Mandates (They All Have Them!)
Whether you’re fundraising from an angel investor, a venture capitalist, or an institution, you need to know and study their mandates to win an investment
All entrepreneurs have a vision for building a business and they expect investors to buy into that vision. While an investor needs to get behind their way of running and building the company, they also have their own agenda to fulfill. Specifically, I’m referring to the agenda of making sure the investment opportunity the entrepreneur is presenting meets their own investment mandates.
Don’t Waste An Investor’s Time Or Yours
While your job as an entrepreneur in fundraising mode is to source as many investor leads as possible, it is important to remind yourself only qualified investor leads matter. Qualifying an investor ahead of time means that the investment opportunity you are going to pitch isn’t going to hit an audience that doesn’t understand what you’re doing, doesn’t want to understand it, and won’t add value to either you or them. Instead, qualified investors will be ready to give proper feedback, won’t need extra time trying to understand your industry and value proposition, and most importantly, will be more excited about writing a check.
How Do You Qualify An Investor?
The difference between a qualified investor lead and one that isn’t is simply a matter of making sure your investment opportunity is in line with the investor’s mandates. An investor’s mandates are the criteria they look for in an investment that is in line with their investment thesis and due diligence requirements.
On one hand, an investor typically has a belief or hypothesis about a market or technology. Their mandate requires that they seek companies that are disrupting that market or using this technology in hyper-scalable ways. Anything outside of this is simply out of their scope and therefore is a waste of time to them.
On the other hand, an investor also has a set of preferences regarding the company’s history. This could be in regards to previous financing rounds, the length of time the company has been in the market, the expertise of the team, or traction/ revenue milestones. If you are not in the right company stage for the investor’s mandate, then your pitch will be a waste of time.
Professional Investors Screen Companies
Good investors have pipelines of deal flow set up to consistently see opportunities, particularly within their thesis. Many professional investors have screening processes to help them prevent wasting time on pitches outside of their mandate. All you need to do to get past a screening process is to make sure your pitch meets the investor’s mandates. If that’s the case, you’ll quickly be asked to come in and pitch.
How Do You Find Out An Investor’s Mandates?
Most of the time it is right on their website! Investors tend to be loud about what types of investments they are looking for. They’ll either blog about the subject or put on their website that they are looking for companies in “X” industry or using “Y” technology. For those that are trickier or lean more agnostic, then research their portfolio and pick up on the pattern on the types of industries or technologies they like to invest in.
Once you know that your company meets their thesis, you’ll want to make sure you meet the investor’s company requirements too. This is typically defined by the following types of language:
Investment Stage — Pre-Seed, Seed, Series A, Distress, Debt — make sure your company is in the right tier of financing for the investor
Company Traction — Pre-Revenue, Pre-Product, MVP, Product-Market-Fit, Profitable — expect due diligence questions based on your company’s maturity and don’t expect an investment if you haven’t reached the stage the investor targets.
Specific Milestones or Data Requests — Revenue targets, growth rates, CACs/LTVMs/Churn — Some investors will even require specific key performance indicators (KPIs) and product/ customer information in order for them to write a check
By doing this type of research, you can quickly figure out whether or not your company meets an investor’s mandates. If they do, you now have a qualified lead which is much more likely to convert into an investment while also not wasting your time or the investors. One of the reasons rejection rates for entrepreneurs are so high is because the pitched opportunity just doesn’t meet the investor’s mandates.
How To Manage Agnostic Investors
Venture capitalists, hedge funds, pension funds, and similar institutions all have specific investor mandates. This reason is mostly due to the fact that they are all investing other people’s money, who are known as limited partners. Just like entrepreneurs needing to meet their investor’s mandates, those same investors also need to meet the mandates of their limited partners. After all, limited partners have their own thesis and requirements for fund managers.
However, angel investors, family offices, wholly-owned funds and the like can sometimes present an agnostic investment thesis. In situations like this, the best thing you can do is research their past investments and determine patterns to identify if your investment opportunity is a fit. You can figure out an average investment size, check that they have invested in your industry before, and get an idea for the typical stage of the companies when they invest by researching their portfolio. This will give you a good idea of whether or not you will meet their not-so-obvious mandates since they claim to invest in anything. If you end up pitching an agnostic investor anyway, it is still good to know ahead of time whether or not they will understand what you are doing or if you should slow down the pitch and be more educational.
My final comment about agnostic investors is to make sure you are asking yourself what value add they are bringing. When you meet an investor’s mandates, it typically means they have added expertise, connections, and partners that they can plug you into to help you grow and succeed. When an investor is agnostic, it is typically more difficult to determine what they can add to your business beyond just capital. Be sure to evaluate this when you are considering taking on new investors.