Investors are looking for three things: Team, traction, and product. At least ONE of these three things should be massive. James Altucher said it best: It takes six months to raise money for an AMAZING business, infinity on a mediocre business.
So, rule #1: Don’t look for investment until you have one of “the three” absolutely popping’ off.
If I had to choose one of the three, it would always be traction, followed very closely by a unique, defensible product (particularly if it’s a tech product that would be hard to build, or has a community, which also gives you a position of strength). Also, your pitch will suck the first time you try, so don’t burn it on the best investors
Follow Guy Kawasaki’s dream slide deck process or similar, showing one slide for each problem you’re solving, the solution you’ve created, market size/opportunity, team, traction, etc.
Front load the deck with whatever is your most impressive of the three. “Before I start, let me tell you a little about our founding team” (If the team is strong). “We’re growing fast and are already making £10,000 a month” (If traction), “Let’s dive straight into the product, it’s amazing” (if product). Make sure it’s clear in your pitch deck how the investors will make a 10x return on your money.
Who should you raise money from?
The mafia (and gangs in a modern day, to a certain extent) are looked upon favorably for “only going after their own”, i.e. generally only attacking people who have chosen to be in that lifestyle and have then messed up.
Have the same mentality with investors: Don’t work with people who NEED to make the money back they give you.
Investors are like record labels: They invest in 10 companies (bands) and only expect one or two to be massive, recouping the losses of the others and making a huge profit on the side (Adele, One Direction, Facebook, Uber).
THUS if you take money from institutional investors, they’re not gonna make you sell your house to give you their money back (I once was offered £1 million+ investment from (obviously can’t say here) then heard that anecdote and had second thoughts. Established investors know “the game”.
Likewise, if you borrow $25,000 off a family member or friend, that is a TONNE of money to them, and they will hate you for losing it. Institutional investors? The game is the game.
Never cold email investors. They hate it, and it doesn’t work.
Get introductions from smart people in your network. If smart people won’t give you intros, your product probably isn’t that good, always ask them why they think your idea will fail.
Pitching events works but don’t do too many, as investors start to think “If they were that good, they’d be signed by now from someone at one of these events, there must be something wrong with them”.
Angel Lab will give you money quickly if they like you, but it’s HARD to get in there, 5 or 6 members need to nod you into the secret room then you get to pitch them all, as far as I heard (I got 4 interested people but didn’t get into the main pitching room.
Start strong. Attend a few small pitching events to get your weight up and get used to it, practice your pitch with people you respect on Skype, etc.
Remember, brutality normally prevails where there are large amounts of cash involved.
So, some thoughts on the process once you have an intro to an investor:
Details matter. Email signature, sending them documents etc. fast after they request it, showing up slightly early. You have to play their game until you create your own
Concerned about writing this one: If you’re not a youngish (under 40) white male, consider the odds slightly against you. Multiple data points back this up. What does this mean in real terms? Stay on topic, don’t go off on tangents, acknowledge any differences and how they are an advantage, be extremely prepared for the meeting, etc. You don’t have to be formal, necessarily, but you have to be somewhat serious and intense for a sustained period of time/read the other investor to see how to play this.
Caveat for all of the above: Strong domain expertise will make a lot of the above irrelevant: You can do a lot worse than bringing up some of Jay Abraham’s questions he asks new clients to see if they have a clue about the business they’re running. Knowing the below will also protect you from some of the hardest questions an investor can throw at you like who are your competitors, how do you sell, and etc.
Getting deal flow
It’s often said that American investors love to be first in the round, while Europeans want to see others in first as they are more risk-averse. To presume the worst-case scenario, once again, let’s presume the latter. So how do you go from zero to bursting with investors?
Start with the above, a warm intro with a good pitch deck, leading to a meeting where you wow the investors with your future-facing ideas, and insane domain knowledge. Now you need to start dancing with investors. Ask them at the end of the meeting if they want to invest, having already told them how much you’re looking to raise and what you’ll spend that money on.
If they say no, ask them why not, then ask what you would need to come back with (normally a better product or traction, sometimes a team member) for them to say yes.
Email them updates once a month.
So, is great if they say: “I want to invest the full amount you ask for”, (then negotiate terms)
It is good if they say: “I don’t want to invest the full amount, but may come in for a little pending who else you get in the round”
If it’s the latter, memorize the following carefully chosen words: “So you’re saying if we can get another investor(s) in the round, you will invest”, If they say “yes”, you are off to the races, believe it or not.
Your next pitch begins, “We are XYZ company, our product is XYZ. We’re looking to raise $X capital, and already have X committed. You have the other investors word, and that will do for now.
Now once you get the second investor on board with this promise, you knock on the first one’s door and say “I got the other investor, are we doing this or what?” If they back out, you still have the second investor which becomes the first investor and other “interested”.
Join the investors together in a glorious party you organized and let the good times roll!
To learn more, check out Innovation Speaker Erik Qualman for your next event.