Lesson 7: Funnels - Investors & Sales

Funnels: Investors and Sales

Fundraising for a start-up is a type of sales, and the sales process in any company is known as a “funnel.” The definition of a sales funnel is the buying process that companies guide customers / potential customers through on the way to buy products.

The sales process has different stages, ranging from awareness-building to customer purchase. In between are usually the interest phase, evaluation, the decision point, purchase and then re-evaluation and re-purchase. It’s linear, with a clear end-goal.

Companies try to optimize each stage of this funnel to advance customers onto spending money to buy the company’s products. Each time they “touch” a customer (i.e., email, social media interaction, phone call, in-person meeting), the customer either moves forward along the funnel or gets stuck—or leaves the funnel. The company is continuously trying to identify weak points, so they can make improvements, which will help increase sales.

Funnel management is also used by Human Resources professionals for recruiting. HR manages the different phases, making qualified candidates aware of a new job opportunity, taking action to make them more interested, cultivating their interest and evaluation of their company and then advancing them to a decision point with a job offer.

Managing the funnel, as with sales and HR recruiting, applies to start-up fundraising in a very tangible way. Investing is a very high touch form of “sales”, and it involves many calls and meetings. You can be deliberate in guiding your potential investors through your funnel.

Modelling your funnel helps you identify weak points. For example, getting another 5% at the bottom of the funnel might get you 10 more investor meetings. However, if you can improve 5% higher in the funnel (where the numbers are larger) much faster and with less expense, you might get 50 more investors looking at your company. The funnel will tell you who are the higher-value investors and whether you need to expand the number of potential investors in the first stage of the funnel to make them aware of your start-up.

Below are examples of different kinds of funnels on which you can model your own funnel that works for your business:

Investor Funnel

Like a sales funnel, you as an entrepreneur need an investor funnel to close investment deals. You absolutely need a process for bringing on investors into your team because fundraising is just like sales. And because such is the reality of raising capital, you need to begin your fundraising efforts by targeting a broad set of investors at the top of your funnel. The more investors you have initially, the more chances you must eventually move a few of those prospects down the funnel into converted investors. 

As you qualify the investors in your funnel at different stages, you increase your productive relationships and communications with investors. Investor funnel management also gives you important data on your fundraising efforts. Here is a breakdown on how to create an investor funnel:

1. Source Qualified Leads. Focus on casting a wide net of investors who would be an ideal match for your start-up. 

2. Nurture Warm Leads. It will take you some time to create interest among the leads you pursue. Once you identify prospective investors who responded positively to your opportunity, move them down the funnel for further qualification. 

3. Hold First Meetings. This is your opportunity to pitch your company and tell your story. Your slide deck should be clear, concise, and actionable. Remember that you may not get any money in the first meeting. Build the relationship!

4. Perform Due Diligence. Once you’ve met with prospective investors, take time to think about who made you feel good about a partnership and who didn’t. You need to perform diligence on them to make sure they are the right fit for you as they will also research and investigate you as a potential investment candidate. 

5. Confirm Commitment & Collect Checks. This marks the end of the investor funnel and is the point where you confirm commitment from your qualified investor leads and close deals. Remember that it may take several weeks, months, or a year to get checks from investors, so always make sure you have calculated an ample runway to avoid any cash dry ups.
   
   

There is a whole world of investors out there looking for new investment opportunities. The best way to make sure you are partnering with the right people is by having a system, and the best system for tracking your fundraising is having an investor linked to a CRM tool.

Recruiting Funnel

Recruiters can use a funnel to attract, assess and hire the best people available. Five key steps in building a recruiting funnel include:

1. Raise candidate awareness
   You need to define and focus on raising awareness about what makes your company a great place to work. The modern job seeker doesn’t just expect fair compensation, they also want benefits, work-life balance, a positive work culture, and career advancement opportunities. Determine what sets your company apart from others and highlight those key points on your company’s careers page. Make the experience rich with photos, videos, and employee testimonials.

2. Source great candidates
   You can use multiple pipelines for sourcing candidates, and some are likely more beneficial than others, including job boards, employee referrals, social media, and previous applicants. Part of having a recruiting funnel is having enough leads to work with, so integrate several channels to drive up the number of candidates.

3. Generate applicants
   You must be as clear as you can about communicating the positions for which you are hiring for to convince candidates to complete your application process. Don’t write convoluted or ambiguous job descriptions. The information you share should convey the exact scope, responsibilities, and expectations of the job to make for a compelling position to apply. 

4. Interview and assess candidates
   Once you have leads to work with, you will need to narrow down your list to your idea hire. Typically, about 10-15 percent of your applicants should proceed to the interview stage. To get the most out of you interviews, you need to be clear in your job description so that you can ask the right questions in the interviews.

5. Make an offer and hire new employee
   Once you reach the bottom of your recruiting funnel, you need to “close” out the candidate by extending an enticing offer that will get the candidate to accept. There will usually be some negotiation involved at this stage but once you manage to reach an agreement, it’s time for you to start at the top of the recruiting funnel for a different position you may be hiring.