As we all know, an entrepreneur receives lots of advice like – please avoid this, don’t ever do that, you should focus on this, don’t run out of money & blah.., blah.., blah.. until his or her business or startup become self-sustaining and taste some success. The last one is certainly crucial and one should not neglect it. It’s possible that an entrepreneur may face difficulties to find a reliable investor whose investment funds keep the momentum going. Fundraising from investors is often considered to be a basic but complex exercise, but once you face the real market, you might feel like drowning in a mysterious world with unclear expectations. So for an entrepreneur what matters the most is, how to attract an investor and how to make him investing in the startup, but today I’ll focus on some key areas that are often critical to acquire attention of early-stage investors.
An investor typically follows either ‘a theme’ or ‘a thesis’. Theme-driven investing is often inspired by a specific pattern, such as mobile or Internet of Things while thesis-driven investing is motivated by some thesis on how the future of an industry will play out over several years. Either way, if you’re to have a chance of being attractive to investors, you have to fit within their theme or thesis. So do proper homework beforehand and Stop wasting time knocking doors of each and every investor that won’t suit to your business.
You’ll likely become obsessed with getting that first meeting with each of investor once you have a list of potential investors who can help you by investing funds into your business. It’s proven that highest rate of success comes from warm network introductions. The best introductions come from other founders that the firm (the investor) has invested in. But even better is if you already have a contact at the firm. How do you pull this off? Get to know people at the firms before you need to raise funds. Use your network to get those warm introductions when you’re not raising money so that you can form relationships without the pressure of an imminent fundraising deadline. Not only does this give you time to see if there’s a fit, but it also gives investors the time to see you accomplish the milestones you claim you will. Investors will be much more willing to invest when they’ve seen your track record firsthand.
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Once you have contacts who can take at least one face to face meeting, how do you present your business and strategy in a fruitful way that can actually turn the table in your favor? Many founders make the mistake of building a story around a series of checklists they think the investor will want to get satisfied upon, such as market size, relevance to market trends, properties, etc. This may turn down the picture of your business that’s unlikely to get them excited.
Instead what you can do is, choose one or two significant, attractive qualities that differentiate your business from others and represent the vision of where you’re going and how you see your business after certain period of time. Many experienced entrepreneurs have said that an investor will invest because of one number, whether it be traction, engagement, number of patents, or something completely unique to the business. Whatever it is, just pick that characteristic early and test it to check if how effectively it creates the response you expect it will. Beyond this, it’s also important to ensure that there isn’t a deal-breaking characteristic (i.e., market too small, inexperienced team, no viable go-to-market plan). One of the most common mistakes entrepreneurs make is not being aware of venture capital statistics, which requires an investment to offer the potential of a significant return (e.g., 10 times or more) to be worthwhile.
After dealing with many investors and raising multiple rounds of financing, one thing I understand that there are typically only one or two reasons why an investor will put money in your business, but many reasons why they might reject the proposal. Sometimes it may seem like threading a needle, and the only way to truly find out whether your story will resonate with investors is to test it. Like all aspects of entrepreneurship, you should experiment aggressively, fail fast, and iterate. Don’t try to perfect your pitch before speaking to any investors. Instead, build long-term relationships that allow you to grow maturely, and you’ll find that you can gain more than just investment.
Credit: This article was published on fortune.com on 7th Feb 2016 by Karl Martin, founder and CTO Nymi.