I often meet with frustrated entrepreneurs who are trying to raise venture capital and just can not convince them. While dealing with entrepreneurs can be a frustrating experience, here are a dozens or so points that you may want to know about investors before you put your investor presentation together:
- Investors don't like risk. In other words, if the risk could be zero, they would be all over you. So what they want to do is to minimize risk or take only as much as risk as they have appetite for. They also expect you to have thought about risks and how you will manage them. You can convince many investors if you have identified all possible risks and have also developed a risk mitigation program.
- Investors have a rational set of criteria. It might appear that they are just being irrational or "they don't get it" but the reality is that they they do have a criteria that use to evaluate an investment opportunity and it is rational for them. So just respect it.
- Plan your venture with your investors in mind. Generally speaking, investors want to do what they enjoy doing it the way they like it. And then they expect that someone else will pay them to have all the fun. If you design your business with the investors in mind from day one, you will be better off. So think of your business as a triangle with three corners formed by the entrepreneur, investors, and customers. As long as all three can support each other, you can build a solid business.
- Protectable assets. Whether these are physical or intangible assets, investors like to see that the assets can be protected in some ways. No wonder investors love patents, long-term contracts with key employees, etc.
- High barriers to entry. Sounds pretty obvious. At least these barriers should be high enough till they are invested. (Related article: Competitive strategy)
- Developed offering. Many a times all you have is what you think a great idea. Unless you are talking about something that will require tens or hundreds of millions of dollars to even develop a prototype, it is much better to have something tangible to show to investors. Any thing they can see, touch, and appreciate what you are talking about. If you take your idea that far, investors are also impressed with your commitment.
- Team. There are even legends how the team made all the difference. So get great people who are committed to the business. No part-timers and consultants.
- Business model. Think it through and refine it through discussions with customers, suppliers, and any one else who can challenge. If you have a solid business model, you will be able to answer questions from skeptics.
- Possibility of big returns. Indeed there are investors that will be happy with small, but secure returns but most investors like to receive big rewards. If your business does not have that, you might be better off getting loans from banks.
- Small investment. While investors like big returns, they also love businesses that require small investments. If you need to build a multi-billion dollar petrochemical complex, consider putting in most of your own money.
- Growth and value in near term. While investment horizons might vary, venture capitalists look at 3-5 years window. The longer the time horizon, more difficult it is to raise money.
- Focus. Try to do one thing extremely well. If you have related business opportunities, it is OK to show them as future growth options, but for the business that you are trying to raise money, keep it really simple.
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