The old adage for raising money is that investors invest in the team first and the product or service second.
Therefore, if investors primarily invest in people, then what they are really investing in are relationships built on trust. This is why entrepreneurs tend to raise money from friends and family first â€“ Â they know you best and trust you most. Though it’s not easy, trust can be created from scratch. That said, if you’ve quickly burned through all your immediate prospects with whom you have significant pre-existing trust and relationships, you need to must be prepared for the consequences: fundraising will take a long time.
So where does investor-investee trust come from? The deepest levels of trust exist among people who have shared experiences: a former boss, teacher or colleague. You’ve been in the trenches together. Trust canÂ also come from reputation or achievement; for example, the previous successes of an entrepreneur. To a lesser extent, trust comes from ‘connections’ — say the school one attended, or from ‘endorsements’ — banking on the judgment of someone else or even from something more esoteric. The point is building trust from the ground-up or from a softer connection is not easy.
As an entrepreneur looking to raise capital, the approach cannot be to simply sit back and email executive summaries blindly. An email, even a pitch, is not a trust building event. It’s really a foot-in-the-door. The best entrepreneurs understand this difference and figure out ways to use it as a launching pad for relationship development.
If you are serious about raising money, you need to be serious about developing relationships. Instead of emailing, attend events to meet people personally. After a pitch, follow-up religiously with contacts Â — why not invite them to coffee? When cold calling, really do your homework to try and make/find a personal connection with someone. Yes, it takes time and dedication, but it’s the only way.