Approaching investors with a deal - how to understand that investor is real

September 23, 2024

by a searcher from The University of Chicago - Booth School of Business in Singapore

Got this question most recently - I'm a self-funded searcher, found two deals and now approaching investors. Sometimes I have requests out of nowhere - I don't know these people and have no friends in common, thus have no clue weather they have the money or not. How can this be found out politely without alienating investors? What's the common practice here - how to make sure that you face the real investor with the money, rather than someone who wants to steal your deal?

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Reply by an investor
from University of Maryland in Singapore

As someone who saw your deal and said no, let me share from my perspective. For me real depends on the amount and the terms. You told me the equity gap lets say 2m, but you didn't tell me if I am supposed to fill that gap myself (which I would not do), or you are looking for a ticket say 200k which I would do.

If your investor leads are coming from a platform like this, they are usually lower quality than someone you source from your own network, so what I do when I raise capital is in the first meeting or call I ask a few questions about what type of tickets they invest in, what deals they have done in the past and the timelines and what they would need to see before they invest.

Specifically to your deal I dislike what is happening with seller financing and what is happening with bank financing. I also dislike the terms for an equity holder in the agreement. Lastly I didn't really like the answer you shared regarding how one would exit the investment. That is why I personally decided to pass.

Reply by a professional
from University of New Brunswick in Saint John, New Brunswick, Canada

Very direct and good feedback from Steve. His point on sourcing from your network is key. If it's your first deal, just focus on getting one investor who believes in your vision, then get their help raising the rest. Look up what other funds do for ticket sizes and go with that for now. Like Steve also said, investors want specificity. How many investors total, how much have you raised, what are the terms, how will it be governed. The first investor will be investing in YOU, spend time building their confidence on you.. How do your skillsets, core values, and experience correlate with the assumptions in your acquisition plan.

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