As an investor I have the opportunity to speak with a lot of startup founders ready to share their passion in their quest for investment capital. My empathy for both the entrepreneur and the investor community has put me in a unique position to see both sides of the coin. Many entrepreneurs would be wise to think before they speak to a potential investor group or person. Here are a few things I think about before asking for or making an investment.
- Operate With Integrity
The difference between an entrepreneur and a conman is their integrity. You will hone your skills before successfully pitching an investment but you need to be honest. You can’t lie, deceive, or attempt to fool anybody. You need to give everything that you promised and more than they expect. Raising money is not a game where you try to convince people to give you money. It’s a way of letting somebody with resources take part in your endeavor. If you do it right, you both win. If you do it wrong, you make enemies or lose friends. And if you do it really wrong you may end up in jail.
- Make A Friend By Being A Friend
Chose whom you’re going to talk to about investment very carefully. There’s no way to know what kind of person may be interested in investing in your idea unless you get to know them. One of the big mistakes people make is they shotgun stuff out to everybody and then they try to make an introduction and sell at the same time. That’s just acting like a 19-year old dude in a bar trying out a pickup line. It may work eventually but it’s not the best way to get married.
- Use A Rifle Not A Shotgun
Would you be pissed to discover that your DOW mutual fund tanked because it was actually invested in international high-risk stocks? Talk with people that have the ability as well as the desire to invest in your ideas. It seems obvious but investors have a particular angle through which they invest. A lot of time investors represent a group of investors and they have criteria within which they can invest. Think about mutual funds. When you pick a mutual fund you pick the fund based on the criteria with which you’d invest. The same is true for all kinds of investors be they seed, angel or venture capital. The other thing is I believe in the Ten Deal rule. Most firms don’t do more than ten deals a year. So if you’re dealing with an organization that has a $1 billion fund they’re going to be looking at $100 million deals and your $1 million deal just isn’t going to get their attention. On the other hand if you’re dealing with somebody with $10 million worth of liquidity then a $1 million deal might be right up their alley.
- Round Pegs Go In Round Holes
Choose potential investors that have already demonstrated the appetite to invest in your area or close to your area. That saves a lot of education. The worst thing is trying to get in front of an investor who has no clue what you’re talking about. That’s like trying to put a round peg in a square hole.
- Remember The Golden Rule
Those who have the gold makes the rules. It’s important for you to be flexible on your deal terms and to base your terms on what your investor does. It sounds odd but if you pick the right investor, they’re terms are going to match your needs. A lot of people say this is how I want money and this is how it’s going to go. That may work in a friends and family round but just remember the golden rule. So most often they’re going to make the rules. That’s why it’s important to pick the right investor.
- Be Like My Dog
I’m pretty sure my dog’s never had a bad day and when I call her she comes running. Make it easy for your investor to deal with you. People are busy and investors are skeptical to deal with people they’re not familiar with so if you’re going to be available you’re going to have to go the extra mile to be available to them. It sounds obvious but your reputation is everything so you’re going to want to make sure that as people investigate you on Google or through social media or whatever, that you’re representing yourself well and responding like my dog.
- Treat Follow Ups Like Christmas
I never forget what day Christmas is on and I never use an alarm clock to wake up on Christmas morning. Be sure to answer investor’s questions immediately. You have to have it on the tip of your tongue or the package already put together. The worst thing to do is to be in an active conversation with a potential investor and then say, “Hey, I’ll get back with you,” and then forget. You’ll be amazed at how often that happens. If you do need to get back with someone treat it like Christmas.
- Burn The Boats Behind You
You need to be confident and don’t look back. You need to be confident in yourself, your idea, and the opportunity. People don’t invest with someone who doesn’t show enthusiasm or confidence in what they’re doing. You need to prove to investors that you’re committed to the project. It reminds me that I heard in a pitch the other day someone say, “Well, I’m trying this and I guess if it doesn’t work I’ll go back to my job.” Is that somebody you really want to invest in? It sounds like somebody that has a back door. I want to invest in somebody that has no way back home because they burned their boat.
- Write Down The Terms
As you begin verbal agreement you need to get everything down in writing. At some point you have to get their financial commitment on paper. The way I like to do that is to start with bullet points, agree to the fundamental terms and get a signed agreement that this is the conversation that we’ve had and these are the points that we’ve agreed to so far. Negotiate those before you bring in any attorney and have to start paying legal fees.
- The Joy Is In The Journey
Lastly, I know it’s stressful, but you have to remember that this is your business and it’s going to change your life and it’s going to help the investor, your employees, your customers and the economy. You’re picking somebody that ‘s going to go along for the ride but not just the ride. The best money is strategic money, somebody who’s going to advance your cause. Making money is the goal, but the journey is the joy. You’re going to have a lot of stories to tell, and that’s why I’m continuing this journey. Hope this helps.