When Yohei and I initially started raising our fund, our first step was to approach famous angel investors. Many of these angels could only write us $300K — $1m checks. But for a $30m fund target, that wasn’t going to move the needle very much. We would have probably needed 30–60 angels to top up our fund. It would have been a very inefficient fundraising process, and a huge pain to manage so many investors afterwards.
So why did we approach them first?
We approached famous angels first because they were low hanging fruit. They were the sole decision makers and therefore could decide quickly. We knew that before we went to the large investors that could write $3m — $10m checks, we needed to create a small track record. Large investors, like corporates and institutional investors, tend to be more conservative and take much more time to make a decision. Being able to say that Taizo Son (founder of Gungho) or Kotaro Chiba (co-founder of Colopl) were already committed to our fund meant that we were not showing up empty-handed. Their commitments demonstrated that we already had traction, and that we had been vetted by veterans in the industry. These were very positive signals that led to commitments from the larger investors.
I now call this the Low Hanging Fruit Strategy (LHFS). LHFS can be applied to raising money for startups as well. Before you start fundraising, identify your low hanging fruit. They don’t necessarily have to be angels, they just need to be decision makers that can move quickly. In the startup world, that tends to be either angel investors or general partners of independent venture capital firms. Corporates tend to have bureaucratic processes that take much more time to drive internal consensus. There are some exceptions, but in most cases they are not able to commit quickly.
Ideally, these low hanging fruit will also have great reputations that will influence the decisions of slower investors. Try to get known names committed before you go into meetings with others.
At 500 Startups Japan, we’ve given offers within 24 hours of meeting. These are exceptions, but we do tend to be fast. This is partly because we’ve fundraised ourselves and understand the importance of low hanging fruit, and partly because we simply see it as our competitive advantage. Our goal is that when founders come to us, they can expect a quick decision.