First-time founders face a big challenge when raising money from investors they don’t know. Building trust, confianza, is essential for receiving any early stage investment, and perhaps even more in Peru and Latin America.
This challenge happens after a founder has raised a friends-and-family round or received grant money. The founding team has reached a stage of minimum viable product or even product market fit and needs to raise money to execute on traction and achieve scale.
Here are three ideas for building trust:
- Set up a formal advisory committee that meets regularly. Why? Integrate people formally into the startup without the legal implications and cost of a Board and show potential investors that the founding team is receptive to feedback. The advisory committee provides founders an opportunity to produce meeting materials and strategic plans that can be shown to future investors. These committees are also a source of future investors (see #3 below).How? Set up a meeting every two months and invite founders you respect, sector experts, or potential investors to come. Make a presentation to show them your plans and listen to their feedback.
- Add a timeline slide to your pitch deck.Why? Investors you don’t know worry about what the founding team will do with new capital. Show investors what has been achieved to date and with which resources. This will build trust for first-time founders.How? Create a slide with a timeline starting at the point of founding that marks: (i) when (and how much) money entered the business, and (ii) key milestones achieved to date. Founders can also add a point in the future to indicate what they hope to achieve with the current round.
- Ask for introductions to potential investors rather than reaching out directly.Why? Trust is built through mutual contacts. Investors receive a lot of emails. They respond first to mails from people they know. How? Create an email template with a summary of the startup and team (or an attached one-page document). Ask a fellow founder or a member of your advisory committee to send an intro mail to five potential investors.
All of this takes time, but will show investors you are serious about initiating a relationship built on trust. If done well, these steps can save founders time down the round and make a fundraising process por efficient.
Many of the ideas above come from founders in Peru, and especially from a recent talk I went to by Anson Tou. Nicolas Di Pace of Culqi also has written down some of his learning from Culqi’s most recent financing round. I recommend reaching out to Anson and Nicolas or other founders to ask for their tips or examples of what they are doing to build credibility and find new investors.