Meet People Before You Need to Meet Them
Investing in Your Network to be Future-Ready
By Bonnie Foley-Wong, Founder, Pique Ventures
The Diana Project, an initiative of Babson College that engages in research activities, forums, and scholarship focusing on women entrepreneurs and their growth, noted in its 2014 report that women are typically excluded from networks of growth capital finance and appeared to have insufficient contacts with investors and financiers. Business advisors can guide women entrepreneurs in taking extra steps, and taking them early, to develop the funding networks that they need presently or in the future.
To establish a network of aligned investors or funders, you need to meet people before you need to meet them.Some people might call this “network early.” The idea of establishing a network of people to whom you can turn is true about a lot of different situations—think of how many times you’ve employed your network while you’ve been helping your clients. And it couldn’t be truer for seeking capital and getting funding—whether it’s you using your network for your clients or your clients using their own. Even the most experienced and seasoned entrepreneurs turn to people in their existing network, whom they know well, with whom there exists mutual trust, and with whom they have great relationships. Building a strong network that can be ready to support future needs requires an investment in time and energy upfront.
Funding Networks
Whether it’s venture capital investors (VCs) or providers of institutional finance, relationships and networks matter. Researchers found that “many VCs show a preference for networks rather than arm’s-length, spot market transactions,” and that better-networked VC firms and their portfolio companies perform better. This goes beyond the context of raising capital and looks at the financial performance and success of VC firms and ventures.
For entrepreneurs, sourcing capital for hard-to-finance early-stage businesses is possible when there is already a network of potential investors in place, who know them and trust them, to whom they can quickly turn to socialize the idea. Early-stage ventures or businesses undergoing a significant change are perceived as risky and investors are unwilling to part with their capital unless they know it’s going to be in good, safe hands. Investors want to know that the business leaders they are backing have the know-how to reduce the risk of the situation, generate a return on investment, and have the positive impact they are striving for. Similarly, business advisors also need to be nurturing their own networks in order to support the entrepreneurs and ventures they work with.
A number of different factors matter when it comes to the impact of network on raising capital for entrepreneurs:
- Having potential investors in their network provides a starting point, but there is no guarantee that they’ll invest.
- Experience—combined with business acumen, an idea, vision, and the ability to convince people that they can navigate the risk facing their venture—is a starting point for developing an entrepreneur’s network or expanding their existing network.
- Social capital amplifies financial capital. Someone who is willing to invest their money and their network, influence, and reputation is very valuable and amplifies the capital they put in, plus it attracts more capital and attention. Capital (social + financial) begets capital.
- Entrepreneurs have to be willing to ask their network. You never know who is in your existing network—you only find out by sharing your vision and strategy, and then asking.
- Entrepreneurs need to think like an investor when building their networks or reaching out to people in their networks. Entrepreneurs bring something to the table and should approach potential investors in their networks like they are peers. Entrepreneurs are the first and biggest investor in their own businesses and can think about fundraising calls-to-action, like invitations to others to co-invest alongside their own sizable investment.
How to Meet People Before You Need to Meet Them
I’ve made the case for building your network early and meeting people before you need to meet them, but many people ask how to meet people when they don’t know they need to.
- Think ahead to the future. By tapping into their aspirations and their intuition, entrepreneurs can begin to imagine where they want to be in the future. Business advisors can support this future-oriented visioning process and help entrepreneurs anticipate future needs.
- Align around mission, values, and vision. It can be challenging to analyze a future that hasn’t happened yet and seek funding for future needs yet to be identified. But entrepreneurs can build their networks early with people who are aligned around the same mission, values, and vision. Having shared purpose is core to building trust early.
- Diversify your network. Being open to connecting with others, with no set agenda or transaction in mind, can lead to opportunity. Mark Granovetter, an American sociologist and university professor, posited in 1973 that acquaintances—or weak ties—are likely to be more influential than close friends, particularly in social networks. Grow the number of connections you have outside of your usual network and community.
Guide Your Clients in Growing Their Networks
Who you know and what you know go hand in hand when it comes to entrepreneurs starting their ventures and ensuring they are properly capitalized. As business advisors, you can help your clients by guiding them through their homework first. They should know their market, their numbers, and their needs to be able to give investors the confidence to invest in them and their venture. With this knowledge in hand, entrepreneurs can then be ready to socialize their ideas, meet people before they need to meet them, and grow their networks to be ready to rise to the occasion in the future.