A good number of today’s funded start-ups provide incredibly useful technology but lack a marketing strategy or coherent business plan. To many observers, the old rules that once governed investing in startups have gone out the door. It may seem that wisdom and experience, as well as the necessity of projecting a “professional” image and demeanor, are outdated concepts. They simply aren’t valued, or at least not really suited to the world of technology start-ups.
But the reality is that no matter how casual and informal the current culture is and may yet become, certain traits and attributes will always matter to those who invest in start-ups. Here are four traits that, especially when demonstrated during fundraising, are sure to help entrepreneurs earn the respect and confidence of, and ultimately desired funding from, the investor class.
1. Leadership ability
Investors want to fund ventures run by leaders, not problem-solvers. This statement may not seem logical, at first. Who doesn’t want a problem-solver on the team? But that doesn’t necessarily mean this person belongs in a leadership role. Investors will ask tech entrepreneurs during pitch meetings, “What problem are you solving?” Because technologists are the ones launching many of these early-stage, high-valuation companies, they’re apt to answer with a technology explanation. The thing is, being able to explain what you’re going to accomplish and what problems the technology venture will solve actually says nothing about what kind of leadership skills you bring to the table.
According to McAdory “Mac” Lipscomb, a long-time advisor to startup CEOs, “The answer that I recommend to every one of these guys that I coach, and I probably coach 20 companies a month -- if they‘re asked, ‘What problem are you solving?’ -- shouldn’t be [about a problem] at all. It should be, ‘Well, actually I’m not solving any problem. Consultants solve problems. But I am an entrepreneur that has identified a business opportunity that is going to make a lot of money, and let me tell you about that business opportunity.”
2. Fluency in the language of business
The ability to understand (and correctly use!) the terminology and vocabulary of the technology world is prized in the tech startup community -- as well it should be. Similar skills as they relate to business fluency, however, are much less valued, and for those thinking about investing based on the long-term growth prospects of a start-up, that’s not a good thing.
According to Lipscomb, “For a lot of these folks, as they are getting ready to hit the fundraising circuit, I say, ‘Guys, this is not NY Tech Meetup.' While the Tech Meetup audience wants to hear about the technology, at the end of the day if the entrepreneur is unable to articulate a business case around their idea, the venture is seen as nothing more than 'technology for the sake of technology.'"
3. Respectful of the VCs' time
If VCs have a reputation for being impatient, it's probably not so much about their tendency to be highly intelligent and easily bored. Instead, as with everyone else, "time is money," so if you waste their time, they certainly aren’t likely to risk wasting their money on you. Consider that a typical venture capital firm will look at 1,000 ideas in a year and invest in ten of them. Also consider that they hold a minimum 20 meetings a week, every week of the year, and that of these 20 entrepreneurs pitching, 15 may show up late or have nonfunctioning USBs or computers or Wi-Fi. Clearly, these young hopefuls are sending a signal of their inability to deliver. And by doing that, they are helping the VCs determine the answer to the question: If they invest in your venture, are you going to be respectful of their resources?
4. Ability to think long-term
Even if nothing happens after an initial meeting, the entrepreneur will be wise to stay in touch with the VCs for as long as it takes. Just because they did not want to take it to the next step does not mean they don’t think the entrepreneur and/or the idea has potential. According to Bob Johnston, executive director of the New York Venture Capital Association, “Much can depend on what stage they are in with the life cycle of the fund -- earlier equals higher risk tolerance; later may not mean less risk but usually means their investment philosophy is more conservative.” In fact, if your ideas are interesting, venture capitalists -- even if they pass on an investment -- are usually eager to stay in touch and will be happy to provide feedback and advice when asked.