How to find an investor? Start by looking at yourself
Have you been trying to raise money for a long time; trouble finding the right investor?
Many founders spend far too much time on talks and pitches with the wrong type of investors. And it makes sense too, startup money is definitely out there, but held by only a few dozens of Business Angels, VCs and Institutional investors. These are the ones that almost everyone is pitching to.
These traditional investors, have a lot of things in common. They look at the world through a different pair of glasses than most of us.
It is not uncommon, that there is a mismatch between the perceived value creating assets of a startup. What investors perceive to be important and asset-worthy, might not be the way that you perceive your company.
That is why it can help to take a hard look at the type of entrepreneur that you are. Especially when you find it difficult to find the right investor match — and avoid a few common pitfalls.
Most projects are not natural unicorns; although we would like them to be. It is key to know which value creating assets your company actually holds; you need to know how your product can create shareholder value.
“The products that make it to market, are not always the best in class; they solve a problem for someone — and usually it is the shareholder first”
“How can your startup create shareholder value?”
Investors are hungry for products and services that have the potential to change or even disrupt an industry. Scalability and market potential still remain key aspects of any investor pitch.
Yet, the potential market is only one side of the picture; nothing is as important, as the value that you can create for your investors…
This perceived value can differ greatly with regards to the type of investor you are trying to target. When you are going after a corporate investor or an industrial partner as an investor, they might be far more interested in the team or your technology than anything else. Whereas a Venture Capital investor, will be looking at scalability and market disruptions.
Therefore, you need to know exactly what the value proposition of your company is or can be to your potential investors.
This might sound obvious, but it is actually one of the most common reasons for funding problems. An early mismatch between the investor and the value creation goals of the founding team are hard to overcome.
One of the problems is though, that unless you have a strong network of investors and people who can make introductions to those who “sit on the cash”, all you are generally left with is just sending in your proposals.
As most VCs, family offices and high quality investors get tons of proposals on the table every single day, they don’t often take the time to write you an elaborate explanation to go with the rejection email. Most of the times, you will probably never find out why they didn’t have a more thorough look at your startup.
What happens most often is that there is a strong misalignment of which assets in the company create value.
Aligning or creating a common perception of the value adding assets within your company with the goals of an investor is crucial at an early stage. It is probably the single most important thing if you want to get invited for an investor pitch in the first place.
But this is a challenge that can be overcome — if you are willing and able to put your ego aside and yourself in someone else’s shoes…
You must learn to understand what type of entrepreneur you are; this will make it a lot easier to find the right investor match.
Understanding what type of entrepreneur you are is essential to finding the right investor fit. You should not pitch your idea to every single type of investor; at least have a different approach and goal with each and every one of them.
When it comes to founding roles, these three are the ones that have the potential to create the highest amount of friction between potential investors and founding teams.
Have a look to see which type you might be and what you should keep in mind when approaching (any) investor:
Has created or is creating a superior product to anything else on the market; high attention to detail with little or no marketing skills.
When you are a typical product founder, or inventor you will find it hard to let go of your product. To you, the product itself is the most important asset in your company.
You can spend days or even weeks on end working on one specific detail; perfecting the product day in and out.
Challenge: most investors do not invest in one single product. They are more likely to invest in a product that can be used in a variety of ways; has a broad and scalable market potential. Knowing when to stop “investing” time in your product and to focus on getting it to market is crucial for investors.
“You need to understand what type of investor can help you and fill the gaps that you have on your team”
As an investor does not work with the product himself on a daily basis, he will be further away from your product than you. What interests him most, is not just what is under the hood. An investor who believes in your technology, will want you to make it available to the masses; ready to market.
Good investors know, that there is no such thing as one perfect product. Great products evolve over time and you should waste little time in getting your ideas to market.
Sees a market opportunity and has an idea how it can be tackled; lacks the resources to do so.
If you are this type of fund-seeker, you will probably know that deep down inside you are risk averse. This might sound counter intuitive, but I have met a lot of founders in the last few years who simply didn’t have the time/resources or balls to give their ideas a real shot themselves.
This founder is creative, maybe even brilliant and possibly a good salesman. Oftentimes the opportunist lacks the team to really get things done. With your skillset, you should go out and try to convince as many people of your idea as possible. Get a few partners on board and bootstrap the hell out of it before starting to find an investor.
“An idea is great — proof of concept, even better”
In my experience, the opportunist has a hard time to stick with his idea and execute it to the fullest. Once you realize that this is you, it’ll be easier for you to set your priorities straight — and hopefully help you to ask your potential investors for the right type of resources.
Keep in mind, investors don’t like to pay for an idea — but they are more than willing and able to fund the execution if you show them where you would like to go.
“Long term commitment to the project can be a key aspect and asset to an investor. Very few want to invest in a company, knowing that the founding team is aiming and eager to leave within 3–4 years”
Challenge: Investors want to see a proof of concept. They want to know that your ideas are viable in the market and most importantly, they want to see you try. They want you to work on your startup with heartfelt passion.
There are some great people out there with brilliant ideas. However you should know that if you are just trying to sell your concept, raising capital is not the way to go. You will need to get your hands dirty if you want to convince someone to invest in your company.
Wants to change the world we live in; a dreamer with a clear goal in mind.
Visionaries are the rarest form of founders. They know exactly where they want to go, but usually do not just know exactly how they would like to get there. And that is fine; it defines who they are and it is an absolute strength.
They don’t always see that they are a visionary though. Which can be a bit of a problem. A visionary does not always understand that he needs a tangible product that supports his thoughts and ideas.
“When you have a long term goal in mind, don’t forget to take smaller steps in between”
Challenge: Investors love to dream. The bigger the better. However the world of venture capital and even angel investments has changed quite a bit in the last decade. It has become increasingly more important to provide shareholders with tangible assets.
Raising on a vision is an art in itself. Don’t forget to define a concise development path for you and your company. The more concrete you can define your goals and vision, the better.
It is key to understand: What you and your founding team see as the main value bringer of your product, might not be what the investor sees as your greatest asset.
It is essential for you to know how you look at yourself, your team, your vision and your product as an asset.
The word investor is far too broad as a general concept. There are different types of people and companies who can support you; help you reach your goals.
To me, it starts by understanding where you are at today. What are your key strengths and how do you perceive your own startup or young company.
Fact of the matter is: finding the right investor (supporter) can be a painstakingly long process.
If you want to create value for your potential investors, you need to put yourself in their shoes.
- What is it that they are looking for?
- How does it benefit the investor in the short,- and long run?
- Do my objectives fit with those of my supporter?
Whatever type of founder you are, understanding the goals of your potential investor will help you focus on those areas of your business that truly create shareholder value.
Don’t get me wrong, there might be an obvious mismatch between the way that you think a business should be run and how valuations are being made by investors. Yet, this should not put you off in any sort of way.
If you are serious about raising money and think that this is the most viable option for your business, then you need to understand what type of founder you really are — so that you can align your objectives with those of your potential investor.
“Continue to believe in yourself — there is a perfect match for each and every one of us out there”
I hope that these thoughts gave you something to think about and helped you gain a little more perspective on the world of startups and fundraising.
If you are interested in similar stories in the future, feel free to follow me here on Medium. Have a great day, Remco Livain