It is only in comparatively recent years that investment money has become available to start-ups. The number of scale-up investment deals shrinking combined with a growth of investors resulted in more Angels and VCs open to early investment. Some have moderate expectations, and some are on the hunt for the elusive next unicorns. Founders with little prior experience are more prone to misconceptions about investments and, indeed, these investors.
To achieve more successful outcomes, you need to stop obsessing about your businesses and focus on understanding investors and their expectations. Like any marketing, understanding the other party is the game-changer.
So here they are – 7 points to help you raise the investment:
- However charming, pleasant, and interested the investor seems when they meet you, do not be fooled. They are interested in the opportunity to grow their portfolio. They are not there for love, nor can they afford to be.
- It is natural to be focused on how brilliant your product is. But investors look less at product and more at market opportunity. They know great products can fail, just as even hugely successful companies get them wrong. Microsoft, Intel, Facebook, Google, Apple – all have a trail of abandoned products behind them. Their products were good but either not good enough, beaten by the competition, or simply failed to make the market happy. Hence the investors are more interested in how much opportunity there is in that market, because they know a product can always be changed.
- Winning investment is no guarantee of success. Investors may well be knowledgeable, but they are not infallible. Some of their deals will fail. Many operate at least in part on gut instinct which is a risky way to do business. They are market-susceptible, the same as the rest of us. For example, investors loved disruptive energy companies a few years ago. Yet how many of these have gone bust in the last year. It can work the other way. No one could have seen how the less-than-perfect zoom product would catch a pandemic tidal wave of demand and become colossal. Sage investors, such as Warren Buffet, know their fallibilities. You may feel boosted by interest or offers from investors, but recognize you could still be headed for the percentages that fail.
- Investment makes it easy to delay making money and be distracted by the idea of improving the product. Far better to be generating revenue from the start and let that pay for your improvements. Preto typing can be better, getting you to market faster, better, cheaper. Business success is about revenue, not product brilliance, and the wise investor knows that and won’t be happy holding out for some golden product. Don’t forget it as a founder either.
- You may well have started your business to have more control over your life. Be realistic and know that you will have even less after investment. Investors will want to put someone into your company to have some control over their money. Reasonable, of course, but bear in mind that their opinion may not be yours and will carry more weight. In addition, substantial chunks of your time will now go into reporting. Strike a deal, and the money comes with a new job – keeping the investors happy.
- Investors are looking to have control. Don’t make any mistake about this. You are giving up a chunk of your baby for the money to help it grow up. If you can’t get 100% positive about that and see that you will have a share in something bigger and more beautiful, you may argue yourself out of the deal before you start.
- Investors are fallible, if they believe it or not. The more diversified they are, the safer their wealth. The safer their wealth, the less likely they will need to sell up unexpectedly. So, massive investment by one angel with few investments can be a very high-risk strategy. Be careful who you are getting into bed with.
- Whatever they say to you, they will want to sell at some point, with or without your blessing. It is easy to forget that investors only realize their profits when they sell, so while they will be happy to let these accrue for a while, at some point, they will want to pocket the cash.
- Investment is not a right. No one is obliged to give it to you, nor do you have to seek it. Great companies have been built from bootstrapping, Spanx being one most regularly quoted. If you want to hold on to 100% of your company, build one that can be bootstrapped. You always have choices. But, never forget that because when you want money, you will find there is none around. When you are successful and don’t need it, there will be plenty on offer.
The secret is research, research and research some more. You might also find it useful to read about Oliver Woolley of Envestors who are a brilliant source of advice and knowledge.
And always remember it is a business relationship with a lot of risk on both sides and then you will be one step nearer the right approach.
