Due diligence is important on both sides of the investing table

Here at JumpStart, we are currently supporting tech startups from three separate investment funds totaling $40 million dollars. So as you can imagine, we are getting a lot of attention from entrepreneurs.

But, there are likely even more out there waiting for the right time to connect. That’s because entrepreneurs are often uncertain about when to approach a funder.

Some wait until their pitch is perfect, others reach out to as many capital sources as they can right away. Either way, if you are seeking investment, it is essential to do some homework upfront to show how your business fits with the stage and type of investment the investor wants to make.

If you are just getting started, there’s no harm is reaching out to an investor who doesn’t focus on companies at your stage, as long as you acknowledge the gap. Later-stage investors in particular often appreciate the opportunity to get a young company on their radar before they are actually able to commit capital.

These meetings can be very helpful, so long as you do not try to talk the investor into changing their investing thesis. Instead, you should be asking for feedback on your idea and setting up a line of communication for the future.

Investors want to find good deals, so nearly all of them have websites that clearly describe the companies they are seeking (stage, sector, revenue etc.) Typically, they also list current portfolio companies, which can give you more insight into their usual deals. Many investors like to specialize in particular business sectors where they have built expertise.

JumpStart has three investment funds: Evergreen, Focus and NEXT. All three invest in high-potential, early-stage technology companies headquartered in Ohio with an emphasis on IT and health care startups. But the funds also have key differences.

The Evergreen and Focus funds typically invest $250,000 in high potential seed-stage startups. While the Evergreen Fund invests only in Northeast Ohio startups, the Focus Fund invests in startups led by African-American, Hispanic and/or female entrepreneurs all across the state.

Meanwhile, The NEXT Fund invests in tech companies that are past the seed stage and are advanced enough (e.g. significant recurring revenue) to need early-stage, or Series A capital infusions of anywhere from $500,000 to $1 million. This fund typically co-invests with other Series A investors and targets companies all across Ohio.

When making investment decisions, we look for the companies that have the strongest leadership, the most sustainable competitive advantage, a minimum billion dollar addressable market and a capital efficient business model.

Understanding a funder’s investing criteria and how your business fits will help you put your best foot forward whether you are approaching JumpStart or any other investor. Knowing who you’re engaging with and being realistic about what you both bring to the table will help greatly, no matter which side of the table you’re sitting on.

Jerry Frantz is managing partner, entrepreneurial services and investing, at JumpStart Inc.