After observing 1,000+ raises across numerous sectors, we see two different approaches toward fundraising, resulting in very different types of experiences for founders.
The first approach is what we refer to as "spray and pray" -- a state in which founders try to access and pursue any investor(s) that they can easily access (with some high-level directional focus on investors that are "early stage" or "late stage"). With this approach, founders don't have a clearly defined qualification criteria, and are generally relying on hearsay.
The second approach is what we refer to as "high precision" -- a state in which founders first form a specific qualification criteria and then use data to identify investors that meet that. With this approach, founders are laser focused on identifying investors that are the “most likely” partners for their Company.
With fundraising, there is no one approach that fits all companies. There are, however, strong reasons for why banking on empirical precision to identify the "most likely" investors enhances the odds of a successful raise. The below post draws on contrasting patterns that we hear about from founders in each category.
Can’t get intros vs. forward motion
In the spray and pray category, founders often experience very low conversion rates with introduction requests. This often gets attributed to the absence of a strong network, which, in turn, prompts founders to move toward cold emails.
In the high precision camp, founders see a clear forward motion -- they are able to access investors (with at least 5-25% of their intro requests converting into actual introductions). These founders are able to get some form of clear feedback from investors and are able to move forward with key decisions on their strategy.
Our perspective is that landing intros with investors is particularly hard when targeting firms that don’t really invest in the type of opportunity that your Company offers.
Low vs high funnel conversion rates
In the spray and pray category, founders report low conversion rates at every step of the fundraising pipeline. From investors that are identified to ones that take first calls, conversion rates remain low. From ones that take first calls to those that move to due diligence, the conversion is again low. This sometimes leads to a misdiagnosis, often around the business not being ready for the next raise.
In the high precision camp, founders report high conversion rates. In any sales process, a super targeted approach yields high(er) conversion. This is particularly true for fundraising as investors that have a track record of investing in the sort of opportunity that your Company brings have a much higher likelihood of wanting to engage.
Stalled process vs high-velocity
For investors, a key part of the job is to learn about different industries and business models to sharpen their thinking on what the future holds. As such, investors are generally open to taking calls, and are not always decisive or upfront about their level of excitement. Founders in the spray and pray category often experience a “stalled” process, which is neither moving forward nor ending in a clear pass.
In contrast, founders in the high precision camp experience a clear velocity in the process. We believe this is often because the investors they engage with are genuinely interested in the business, are familiar with the space, and are therefore able to arrive at a PoV in a reasonable time-frame.
