When it comes to understanding investors, who better to provide insight than investors themselves?
Below, some words of wisdom direct from professional investors on what you should look for when choosing investors, what you should emphasize during your pitch, and what you should keep in mind once the pitch is complete.
On Choosing Investors
Match Your Vision
“What you want is an investor whose vision for the company and expectation of what success would look like is similar to the entrepreneur’s. Otherwise you can have divergent interests and never agree and then you’re almost, by definition, doomed.”
“Entrepreneurs need to think quite carefully about who they take money from. Investors are partners in building your business, and you need to find people who you really want to work with, who you think can be helpful to you, who you like, who you want to spend maybe the next decade or two with. If you don’t like them, if you don’t think they’re smart, or you don’t think they can be helpful, then go find someone else.”
Look for Investors with Different Skill Sets
“For many startups, there’s really a variety of investors that might serve different needs for their company: one investor that knows about recruiting, one that knows about technology, one that knows about marketing. That also varies by stage of investment: earlier in the life cycle of a company, there’s probably more need for people who know about how to build products; a little bit later, they might want to get an investor who has experience in marketing or recruiting. Further on you might want someone who has a little more scale and operational background, and at some point, hopefully, you have someone who might be able to help take the company public or arrange a sale.
You’re looking for a lot of different skills that will help your company, and also looking at the timing and what challenges the company might be facing in order to decide when certain investors might be more or less helpful.”
On Pitching to Investors
Help the Investor Understand Your Customer
“As someone who’s developing a product in a certain space, you understand the customer and you understand all the little nuances about why your solution is better than the way that they currently solve that problem. Because most problems are currently being solved, it’s just that there’s a lot of friction in that process. So the best way to answer a question about and define the customer problem that you’re solving is to really make sure that the investor understands your customer and understands exactly how they go through their daily life today, and then how you’ll make it better.”
The Merits of “I Don’t Know”
“It’s okay for an entrepreneur not to know every answer. In fact, I get really concerned when an entrepreneur claims they have all the answers. Sometimes entrepreneurs feel like they need to walk in and sell that this business doesn’t have risk and that all the unknowns are answerable, and that’s not the case with startups. You build credibility and you gain credibility when you are able to intelligently and coherently say: “This is what we know, and this is what we don’t.’”
The Importance of Storytelling
“The main piece of advice I give to entrepreneurs is, “Keep your eye on the prize and tell a great story.” Many entreprenuers spend a lot of time giving me excruciating details: about their products, about how they’re going to operate from Monday through Saturday. But they don’t really tell a great story. So I tell them to become a good storyteller. They’re going to need that to give their pitch; they’re going to need that to recruit their employees; they’re going to need that to convince customers to buy products from them when they’re a brand new company. My most important piece of advice is, “Become a great storyteller, and make sure that the story has a big happy ending.’”
“As an early stage investor, I’m not looking for somebody who’s got all of the skills to build and develop a company. What I’m looking for is somebody who’s got the passion and commitment to put in the hard work, but is also willing to listen to the advice I’ve got to give. I’m looking for someone who’s coachable – not somebody who’s going to do what I say without question, but somebody who’s at least going to listen to the mistakes that I’ve made, so that they don’t go and make those same mistakes.”
What Happens After the Pitch
How to Gauge Investor Interest
“It’s very difficult to understand sometimes: did you get a yes, or did you get a maybe, or did you get a soft no? Usually if investors are interested they’ll say by the end of the meeting whether they want to have another meeting. If they say, ‘Let’s follow up,’ that’s not such a clear signal. If they say, ‘Let’s arrange a meeting, talk to my assistant about scheduling it,’ then that’s probably real interest.
If you haven’t heard from them, it doesn’t mean that they’re not interested – they might just be busy. But if you’ve been blown off two or three times, you might want to prioritize other investors who are engaging with you over that other person. Certainly, you can get to a point where too much pressure on them will turn a ‘maybe’ into a ‘no’ rather than a “yes”.
Know There’s a Route to the Money
“As an entrepreneur, you need to ask as part of your first meeting, ‘What is the process here? What happens next?’ ‘What is the route to your wallet?’ is the question you’re asking. If the venture capitalist can’t give you an answer to that, you probably should go find another venture capitalist. You’ll be spending all of your energy during the pitch process, and you need to know that there is a route to the money with every venture capitalist that you’re pitching to.”
Don’t Be Desperate
“Frequently, entrepreneurs, during due diligence, go down the drain because they show urgency, they show that they’re desperate, and that they’re really counting on us. Entrepreneurs need to show that they have other options and the ability to walk away, so we don’t think that we’re their only option. Some of the worst decisions we’ve made have occurred when we really liked the entrepreneur and we knew that we were the only option they had to pursue their dream. We should have asked ourselves, ‘I wonder why we were the only ones who loved this idea and loved this team?'"
“Does failure matter? It depends how you failed and why you failed. If you’re going to fail, you fail in the way that causes the least damage to your personal reputation and to the reputations and wallets of your investors. If you have a good failure, then you’ll get backed again. If you fail because you failed to listen to your investors, or you were unable to react to obvious market changes, then failure is a bad thing and you’re not going to get backed again.”