Casting a wide net when fundraising

We currently have 33 companies in our Turkish portfolio. Of these 33 companies, 24 have received follow-on funding from at least one other investor.

When our companies start to look for follow-on funding, we help them think through investors who are likely to be interested in the company. Most investors have specific geographies, sectors, business models, and/or company stages that they focus on. So, in the past, for each of our companies I would go through my list of investors and advise them on which specific investors to target so as to not waste their time on those that are unlikely to invest in the company.

Over time, I’ve come to realize that this approach isn’t always the right one. It tends to work for those companies for which there’s very strong investor interest. By prioritizing their investor outreach according to who they want to work with and putting an end to fundraising once they’ve reached an agreement, such companies save a lot of time.

However, for companies whose fundraising success isn’t all but guaranteed, which is most companies, it’s better to cast a wide net. You just don’t know who’s going to be interested. There have been multiple instances where an investor who I thought would be very interested in a company didn’t end up showing any interest. There have also been multiple instances where I didn’t include an investor in my outreach recommendation list because I didn’t think that a company fit their investment profile, the company spoke with that investor through another channel, and the investor ended up funding the company.

There could be two explanations for this. The first is that I don’t know the investment profiles of our co-investors. I don’t think that this is the case because that’s one of the first questions we address when we first meet. And I have a spreadsheet where I record what each investor I meet is looking for immediately after I meet them.

The second explanation is that, although investors have investment profiles, these reflect general preferences rather than strict guidelines. If the circumstances are right, exceptions can be and often are made. Given our own investment profile and the deviations which we sometimes make from it, this is the explanation that makes sense to me.

As a result of this insight, I now recommend that our entrepreneurs who don’t have their next round all but guaranteed knock on the doors of as many investors as possible. You should still keep this within reason. For example, reaching out to an angel investor who is known to invest between $100K and $250K to lead your $5M round probably isn’t the right approach. But, as long as you act within reason, the wider a net you cast the higher your chances of landing an investor. You just don’t know who might be interested.

Also published on Medium.