How to Win Investors and Startup Money in a Revolutionary Industry
Of course you may be thinking, "Easier said than done," because forging a path in an untested industry is never easy, and the business climate of declining investment is only making the task harder. To be sure, venture capital investment fell by 30 percent in the final quarter of 2015, and analysts predict that 2016 will be a difficult year for technology startups, with competition increasing as funding declines.
As the money pool shrinks, then, and as more and more entrepreneurs dive in head-first, only the most prepared and conscientious among them will make waves toward success, while their more cavalier peers will sink to the bottom.
So, how can you ensure you won’t be one of the ones left gasping for air and investment?
1. Think like a consumer.
The most valuable investors are methodical. They seek products that solve consumer needs, and they put themselves in customers’ shoes when analyzing investment opportunities. You should adopt the same approach.
Before I began pitching my drone data company Skycatch to investors, I visited a construction site to explore use cases and get customer validation. I noticed that many people were taking photos with their iPhones, so I started experimenting with drones to take photographs of hard-to-reach places at job sites.
I discovered that if I could provide the data, clients would create their own value. Miners wanted better ways to monitor stocks, and constructors sought cheaper, easier methods for gathering the data necessary for building information mapping.
Meanwhile, I've noticed that a lot of startups brand themselves as “Uber for X” or “Amazon for Y,” but if you’re breaking new ground, you need to prove that your target market exists and that success is possible. I created a cohesive story from my research, and the use cases I identified formed the core of my investment pitch.
2. Win with investors.
I knew that if my pitch was to win investors skeptical of Skycatch’s bold move into a new industry, then I had to hone my pitching process. Here are some tips from my own experience:
1. Do your homework on investors. It’s easy to get caught up in your pitch and forget about the investor, but remember that investors are people, too, each with his or her own unique investment principles.
The smart entrepreneur vets potential investors ahead of time. Say you're a social entrepreneur, for example. No matter how strong your product, pitching to an investor who doesn’t believe in social entrepreneurship makes no sense.
Instead, social entrepreneurs would be better served to follow the example of Leila Janah, founder of Samasource, a social venture that provides living-wage digital jobs for women and youth in developing countries. Janah tapped into socially minded organizations like the Cisco Foundation, the U.S. Department of State and MasterCard for financial support. Janah also leverages social media to help her connect with entrepreneurs and investors.
Another example: If you’re in an unconventional industry, then seek people and organizations with histories of contrarian investing. Brush up on your industry knowledge to help investors feel comfortable taking the plunge.
2. Sell yourself as a frontiersman (or woman). When you’re building a new industry, it’s important to convince investors that you’re a capable pioneer who can succeed in untested waters. To do this, act decisively. An investor once left me a message requesting to meet in a couple of weeks. I called back immediately and said that I didn’t need to wait weeks to know that I wanted to work with him. He replied, “I feel the same way. Let’s do this.”
Don’t be afraid to take chances. Entrepreneur-turned-venture capitalist Mark Suster caught Upfront Ventures’ attention with his trailblazing first venture, BuildOnline, a cloud-based software platform he started back in 1999 for engineering and construction projects. After working with BuildOnline for eight years, Suster joined Upfront as a partner.
Suster’s advice? “If you don’t get at least a few fellow VCs (and entrepreneurs) scratching their heads, you may not be funding ideas with enough upside,” he says. Suster shares his experiences as both a VC and entrepreneur on his blog, Both Sides of the Table, and on Snapchat.
3. Keep a few irons in the fire.
Don’t seize the first catch that snags your line: Be patient. Cultivate relationships with dozens of investors who might be perfect matches for your company.
A few years ago, I pitched my previous startup to Michael Berolzheimer of Bee Partners, who passed on the opportunity. We stayed in touch, however, and Berolzheimer later became Skycatch’s first investor -- without my ever pitching it to him.
Similarly, I secured an investment a few months ago from Autodesk, a dream investor for Skycatch from the start. Although I’d hoped Autodesk would invest during Skycatch’s seed or first-round investments, I didn’t give up, and my dedication paid off.
The lesson: If an investor says “no,” don’t get discouraged. Take notes on rejections and stay in touch with desirable investors. And don’t be fooled by investors who say they’re “looking to learn more about the industry.” They’re looking simply to gain information, meaning that you’ve got more pitching to do.
With a new industry and a dwindling supply of investors, it’s essential to give yourself as many opportunities as possible to succeed. Research your market and potential investors; be confident when telling investors you want to do business with them; and don’t give up on your dream investor.
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