The funds have started rolling into Parabase Genomics from its new round of financing. The company, which launched from the UMass VDC, offers a rapid, non-invasive genetic test for newborns for hundreds of inherited disorders. What’s surprising isn’t that the company was funded, but how it found the lead investor – through a cold call.
The Myth of the Referral
Conventional wisdom is that if someone doesn’t refer you, investors won’t talk to you. A referral from another company at the UMass VDC got Parabase in front of Walnut Venture Associates which participated in the round. But the lead investor, SXE Ventures, based in Hong Kong, was solicited cold.
The paradox here is that the fundraising executive team needed to update their playbook. They needed to understand that investors have as hard a time finding candidates to invest in as candidates do finding investors. Indeed at a Family Office panel I just moderated, panelists lamented on getting hundreds of email solicitations a day and that only a very small fraction were a fit for their investment mandates. This inefficiency slows down the investment process for both buyer and seller.
Reaching out to a list of investors that are vetted as a fit for your company is indeed effective.
Creating a Global Target Investor List
The Parabase team decided to test the hypothesis that reaching out to a list of investors that are vetted as a fit for your company is indeed effective if done right. The first step in developing a target list is to identify all the companies that look like your firm and identify who their lead and co-investors were. This über list of investors is quite valuable even if it is historical in nature. These investors will understand the company, the market and the product, service or technology. Even though they may not be investing, they have tons of practical advice to share.
The next aspect is finding even more investors that are a fit based on mandates to invest now and in the future. These investors have investable capital, and are looking to allocate. They are your target list and since fundraising is a numbers game you better make it global. You can conduct the research on your own, but it is most effective to work with an established third party research group that specializes in the aggregation of data. You then mount an outbound campaign to this target list. First you do an email introduction, and then call those who opened the message and set up an intro meeting.
Get the Data, then Sell, Sell, Sell
Sounds simple enough, and is described in detail by Life Science Nation which assisted Parabase Genomics use its database of entities with mandates to invest. The UMass VDC had hosted a fundraising boot camp led by Life Science Nation that Parabase attended. But most other scientist entrepreneurs attending the boot camp were skeptical: “Can you give a reference of someone that has actually called an investor cold?” The answer is yes, it’s called selling! What is even more chilling is this ethos is passed around in the life science community as some sort of rule. Entrepreneurs break rules. They do whatever it takes including making a cold call to a complete stranger who is a known fit for their product or service. A solicitation based on a known declared fit is actually better than a very general referral from someone who has a vague understanding of a mandate.
The essential part of having a well-rounded fundraising strategy is to focus on the right targets. If something interesting comes onto their radar screen, the opportunity passes muster and they like it…then they will invest.