7 Other Things You Must Know Before Approaching An Investor
Do not lose sight of the fact that investors intend to multiply their investment and that is what will bring success to you
If there is a situation that can make even the most experienced entrepreneur nervous, is presenting their business ideas to investors. Let's deep dive and discuss 7 other things that you must know before you reach out to an investor:
1) Are you a Force of nature?
More than the business idea/proposition they (investor) will judge you first. If they don't feel you're a force of nature, you're probably wasting your time presenting to them. Undertaking an unknown sector generates distrust in an investor. He will want at least one of the members (Founder/Co-Founder) to know how to move on the ground and have deep domain knowledge.
2) Is Your POC Ready and Validated?
Anyone can have ideas and that they will probably go to the 'no use' bin if not executed well coupled with correct planning strategies. You must do what is necessary to demonstrate, at the lowest possible cost, the concept of what you intend to carry out, both technically and at the level of the business model, that your startup (no the idea) has the potential to grow over time and is scalable (stress on scalable). The best time to approach an investor is when you have clear POC (Proof of Concept) and the MVP (Minimum Viable Product) ready. Honestly, if ideas do not materialize in a product/service which is scalable, investors will probably not be interested. Build first, then raise!
3) Can You Guarantee 3x Return on Their Investment?
Do not lose sight of the fact that investors intend to multiply their investment in two to three years, so unless you are able to demonstrate exponential growth with potential for them to exit in the following investment rounds they will probably not be interested in you.
4) Don't Only Talk About the Business, Talk About Technology Too
Most investors today are very much interested in your technology. Your investment deck should clearly highlight the tech stack/architecture you're using. This clearly depicts your roadmap on how you plan on taking the products/services from point x to pointy (growth curve) by leveraging technology. With cutting-edge technologies like AI, ML, Robotics, Automation, Blockchain etc. things are getting automated to a great extent. It’s your responsibility to make them clear about your products/services roadmap, your GTM strategies and how you plan on expanding with the use of technology. We have all seen what happened with the leading mobile manufacturing company Nokia.
5) Guide Your Speech
Presenting your startup in front of investors involves a process of due diligence, where the entrepreneur not only exposes but also is expected to ask questions that awaken the interest of the investors. To cite three examples:
a) What do you think of our GTM strategy and our value proposition?
b) What do you think are our vulnerability points?
c) What do you think of the team, who/what do we need to have a 5x growth?
6) Know Your Pre-Money/Post-Money Valuation Game
Investors do not believe in talking down the valuations, they would rather believe in a passing game. So, if your previous round’s valuation is too high, take a note, that is not going to help you. VCs are not open to doing ‘down rounds’ generally and many of them do not even like to do 'flat rounds' either.
Source: Both Sides of The Table
7) Allocate 30 - 40per cent of the meeting time for questions
Your presentation is the starting point of the meeting, but many questions, doubts and even criticisms of some of the decisions you have made will arise. Leave plenty of room to discuss doubts, and above all, never adopt a defensive position. The feedback that an investor gives is a blessing in disguise. Many a times startup teams are seen projecting unrealistic numbers and tend to portray that they know it all. It is better to accept something that you don't know instead of they (Investors/VCs) finding out.
The Bottom Line Is
Did you know that around 9per cent of the businesses today close every year, but only 8per cent are opened? There can be myriad of problems for the same, however, neglecting the proper cash flow and guidance play a vital role in this ‘down the hill’ situation. And, we all know how investors can help in both the scenarios. VCs must be convinced by the idea and you must be ready to tell them how you are planning to grow 5x in the coming years. Not only this, one must know when to start getting a hold of the investor as well; different stages, the right investor and the correct timings play an important role here. Having said that, come across as a force of nature and know your game out-and-out to ensure that you get what you are looking for from a VC.
Anjli is the Managing Partner at EVC Ventures, a $50 million fund focused exclusively on early stage investments in Ad Tech, E-Commerce, Gaming, Education, Mobile Apps, Enterprise Software, Wearables, IoT etc.
Born in India and raised in the United States, Anjli attended the prestigious Horace Mann School in New York City and later received her Bachelor of Arts degree in Anthropology from Columbia University in the City of New York. She supports organizations such as - Inspiration Corporation and Chicago Foundation for Women.