More than your business idea, investors seek to invest in incredibly talented, creative and ambitious people who can achieve great things. They look for intellectual horsepower, thoughtfulness, drive, domain expertise, impatience, team skills, a record of success in anything and a deep understanding of the problem they are trying to solve.
Raise money sooner rather than later and from the right people: Many entrepreneurs try to postpone seeking outside investment for as long as possible so they will have to give up less of an ownership stake in their business.
This is understandable. If you are raising $5m and your business is valued at $15m, you will give up a lot more equity and control than if your business is valued at $100m. We believe raising money early helps protect a business from the inevitable ups and downs ahead in the market. If you try to raise money when you are short on cash, or desperate, or when you have just had a setback in your business, you will be a less attractive investment.
Raise money at the top of the anticipation curve: The anticipation curve refers to that time early in the history of a business when the concept or founders have a lot of buzz, yet little proof exists that the business will or will not fare as predicted. This is a great time to raise money. You have no real results or company track record to vet. At this point you are really just selling the team and the idea, as well as early indications that you are on the right course. Perhaps you have brought on customers or partners, built the site in beta, closed some key deals or secured a unique marketing opportunity.
Much as in dating, it is helpful in the venture capital process to craft an overall air of desirability: There is a lot of group mentality among investors – large amounts of money tend to chase the same ideas. When venture capital firms (VCs) think their competitors are interested in an idea, they will naturally be more likely to want to take a look themselves. But you never want to meet too many firms because, well, who wants to date the person who dates everyone? The trick is to attract interest from several firms while still making those firms feel chosen and special. Two to five firms are usually ideal.
Shorten the time you are in the market for funding: It is not that different in real estate – an owner never wants to leave a house on the market for too long lest potential buyers think no one else is interested and lower their offers.
Most investors respond quickly only if there is a stated deadline or clear competition. And the VC kiss of death is when investors become aware that a company has been meeting the same firms for months with no result. If none of their competitors is excited by the opportunity to invest
in a business, chances are they won’t be either. That iswhy it is important to show positive momentum during conversations
with investors.
Adapted with permission of the publisher, Portfolio