In part two of this Perfect Pitch video series, Stéphane Nassar from OpenVC explains what kinds of signals get investors excited (and which ones don’t!), along with how to build targeted investor lists using four key dimensions.
Key takeaways:
- Signal are words or phrases that get investors excited, such as “exited founder” and specific growth metrics
- Before beginning outreach, a free tool like OpenVC can help you build a highly targeted investor list
- Define your investors by four dimensions: vertical, geography, stage, and check size
The transcript is below, and the interview can be watched on Youtube.
What is a signal? Signal is a few words that will get an investor excited. It doesn’t have to be fair, it doesn’t have to make much sense, it’s just how people are wired. Investors, especially, they’re wired that way. And so if I go to an investor, I send him a very short cold email, don’t say much about the project, but I mention that I’m an exited founder and the previous company that I built was acquired for nine figures, he’s going to take the call. I’m not saying he’s going to invest, but he’s going to take the call for sure.
And so there are a few signals like that. I tried to make a list. Obviously, it’s not perfect, and depending on your geography, your stage, and the type of investor you have in front of you, it’s going to be different. But I would say it’s directionally correct.
So, on the left, you have the strong signal: Exited founder as we mentioned it. If you already have term sheets from Fund X, that’s great because investors love following other investors. If you have significant growth, 20%+ month-over-month revenue growth— fantastic. If you have contracts, like a deployed product contract with Big Name Company, that’s good. For a pharma company, if you’re past phase one, that’s, of course, excellent. And then another signal—YC-backed—we can discuss that but for some people, it still means a lot.
On the right, you have stuff that is not signal. And, really, look at that because there is some confusion sometimes I see when speaking with founders. Having a motivated team is great, right, but that’s table stakes—your team should be motivated. If you say that and you don’t have anything else to say, then I will assume you don’t have much going on for you. Having talks with funds or clients, again, it’s just talks. Everybody talks, doesn’t mean much. It’s not substantial enough to be mentioned and to count as a signal.
So, now for the next one, I may get some flack but I would consider mockups, MVPs, and waitlists as not signal. They used to be, but not anymore. And the reason is because of new code it’s now really easy to have these. And so, they’re not strong differentiators anymore. If you have a waitlist of 1,000 or 5,000 email addresses, that doesn’t tell me much. If you have an MVP, but you built it on Airtable and software, good for you but that requires users. So, having at least active users and user growth would count.
Patents. So, patent, again, people will have very different opinions on it. If you’re a deep tech company—and this is the core patent around which the whole company is built—it must be granted otherwise it doesn’t mean much.
Same with freedom to operate. If not, this may even be a bad signal. In the case where you’re a scientific founder and you’re obsessed with tech and patenting everything, this may actually be a bad signal for some investors, so be careful with that. And the middle are kind of weak signals. Again, not perfect, just trying to give you some directions about what things mean.
And now, of course, you’re going to tell me, “I have no signal.” Maybe you’re in the right column here, you have a couple in the middle column, but you have nothing, you have no strong signal, you maybe don’t even have any weak signal, or you don’t have signal at all.
So what do you have to do? Well, the truth is you’re not going to be able to raise funds by reaching out to investors cold, or it’s going to be very, very unlikely. Cannot say never. I mean, there are always exceptions. But as a rule, it’s going to be incredibly hard. So you should probably bootstrap some more, which means you should burn your own cash some more until you get some traction. You go back to your network, go back to your inbound strategy, go back to your intros, and get more people on board until you secure maybe 30% of the round. And then you have something that will get exciting for people who don’t know you and who receive your cold email.
And so of course when I say that, the next reaction, and it’s completely natural, is to say, “Hey, it’s unfair.” And yes it is. Because it means that you need to burn your own cash, and some have and some don’t. It means that if you don’t have an existing network, it’s going to be 10x harder for you. And it’s true. That’s how the industry works. It’s not great, it’s not right. It’s biased against first time founders. It’s biased against new entrants. But that’s just how things are. So, I would say from the founder perspective, it’s better to just accept it, make your peace with it, and then get over it and just get back to the drawing board, figure out how you can make things work.
Okay, so that’s enough of the gloomy stuff. Okay, so you have done the process, you have a little bit of momentum going on, you have some signal, maybe not strong signal, but at least medium signal, weak signal. So it’s time to build your investor list and target them. So, to build an investor list, and this is super straightforward, go to OpenVC or just type in OpenVC list in Google. It’s probably going to be the first thing that comes out. We have a list of all the VC lists that exist. We keep it updated over time. So, just go there and build your own VC list. Nothing special about it. It’s free, of course.
And then once you have your list, you want to target it. Something that first-time founders sometimes don’t realize, investors are highly specialized animals. They don’t invest in everything. You may have a fantastic opportunity but because it’s not in their space, it’s not in their scope, it’s not in their thesis—you need to know those words—they’re not going to invest.
So, how do you define the scope of an investor? Well, I suggest these four dimensions. The geography: investors usually focus on one of several countries, sometimes even some regions within the country. Stage: some prefer pre-product, some prefer post-revenue, etc. Check size: if they have a sweet spot and some min and max around it. And what I call vertical or investment themes. These are keywords of what they invest in and usually it’s a combination of several.
So, you will have some investors that specialize in FinTech stuff in general. Some will be more into a FinTech marketplace. Some will maybe have a mission on top of it, like they try to empower female founders or underrepresented founders. So, you want to go deep there and really rank your investors by fit for you. So, an investor that would be great for me would not be great for you necessarily.
To make this easy, you can go, again, to OpenVC. This screenshot that I’m showing you comes from our websites, and you can access the lists. Again, it’s free, you don’t even need to sign up. So, you can just research investors and get a list.
Okay, now you have your list. You’re ready to shoot your shots, you’re ready to start cold emailing. So, let’s look at the materials.
