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How do founders become more investment-ready?

You've probably heard investors say that they invest in people, not product or ideas. They look for a great team, knowing that whatever product or idea they have right now will most likely change along the way -- and knowing that a great idea without the ability to execute isn't worth much.

We also know, from the work of Noam Wasserman and his book The Founder's Dilemma, that funding *destabilizes* teams, and that the top reason why high-potential start-ups fail is because of relationship and people problems.

So my question for founders is: What are you doing to become a more investment-ready person and team?

And for those with insight from an investor perspective: What can founders do to become more investment-ready and increase investor confidence?

11 Replies

Keith Weiner
3
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Keith Weiner Entrepreneur
CEO at Monetary Metals
Know their stuff.

Know what to cover in a pitch. Cover it well. Be credible in the things you say. Show they understand--and respect and are on board with--the investors' needs.

Have a unique selling proposition which is both unique and selling.

Show traction, potential, risk mitigation, thoughtfulness, thorough communication, and a willingness to listen as well.

Be a credit person, often but not always a subject matter expert in the area of the company's business. Answer the question of why this team and CEO is the right team and CEO.
Logan Kleier
3
0
Logan Kleier Entrepreneur
Founder/CEO at SecondSight. We tame application sprawl with simple, actionable SaaS application usage data.
Traction is the #1 thing that makes you more investment ready. It also means that you can negotiate better terms the more traction you have. The truth about outside investment is that only a small fraction of businesses even get angel or VC funding. While as entrepreneurs we all believe that we will beat the odds and be one to garner outside investment, the truth is that even "A" teams don't get outside investment. Given this, I'd start with the assumption that you aren't going to get outside funding and see if you can build a sustainable business without it.
Lester de Souza
0
0
Lester de Souza Entrepreneur
Counsel, Barrister & Solicitor at DE SOUZAS
Great questions Kim!
I have heard it said that one needs to know the business partner better than your spouse. You will spend more time with the business partner and work more with the business partner than with your spouse. So, as the founder, it would be more critical to find a partner at least as carefully as finding a spouse.
Irwin Stein
4
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.

Kim: I don't care what you hear but investors want to invest in a business that has a good chance to succeed. I represent VCs and high net worth investors who cringe at terms like "high potential" start-ups. My clients begin with the understanding that most startups fail. If you want their money convince them that you are the exception. You need to have a very good handle on your costs and cash flow. You need to be able to explain, in detail, what you will do with investors' money. A proposal that says "marketing" - $100,000", does not tell investors how you will spend their money. Let me say it again, details. Likewise, a statement "I will hire a marketing person" is worth less than, "I have a marketing person on board, here is their resume and this is the marketing plan and budget they developed." If you tell investors that you intend to sell 50,000 units the first year, be ready to tell them why you think this number is reasonable. And by all means, know your competition, who they are, what they are selling and to whom, and , what it costs. If you can hire salespeople away from a competitor who is already calling on potential customers, so much the better. Convince investors that you know the business you are entering "cold"and convince them that you can make the tough decisions that are necessary to make it work. If you focus on the "holistic" nature of your team and how well they work together, be ready for the question "Are you prepared to fire one of your team if the need arises? "

Bryan Brewer
4
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Bryan Brewer Entrepreneur
Startup mentor, educator, and entrepreneur advisor; focus on helping companies raise investor funding.

One of the biggest things a founder can do to become more investment-ready is to learn to "think like an investor." Put aside your feelings about how great your solution is and ask yourself the question: "If I were an investor, would I put my money into this business?"


Investors want a business to have enough critical mass in its business model, market strategy, competitive position, etc. Take my free Minimum Fundable Company Test at www.mfctest.com to get an idea if you are ready to present to investors.


Finally, always focus on the key question investors have in mind: "What's in it for me?" If you cannot give a good answer to this, investors won't be interested.

Martin Omansky
0
0
Martin Omansky Entrepreneur
Independent Venture Capital & Private Equity Professional
A very complicated question. In our case, we want the venture to have the following features: significant comparative advantage, large potential market, business-savvy founders, appropriate business model, clear, realistic thinking, sophisti aged financial chops. Sent from my iPhone
Ashley Aitken
1
0
Ashley Aitken Advisor
CEO and Co-Founder at HEDventures and Innovately
Hi Kim,

Great question but one that not many of the replies seems to focus on. That said, I am not sure I have any special insight.

Firstly though, I suggest one has to be themself. There's no chance (in the long term) to pretend to be someone one is not. It may turn out that one is not suited to be a startup founder (as judged by the the experienced investors) and that could be good (but hard) news to hear early on.

Secondly, with regards to the team, I suggest the biggest things a team can do to instil confidence are 1) have achieved a lot as a team, 2) demonstrate their is clear and deep alignment, and 3) explain how team member complement each other and are responsible for different areas of the startup.

The alignment one is the most important and most difficult in my opinion and experience. It takes time and effort on something that seems somewhat abstract and distant (the future direction). Discussion, writing short document, and all signing those documents with an open and honest commitment.

Of course, a formal Founders Agreement would be the best way, since it try to make it clear exactly what happens in specific circumstances (e.g. founder leaves, founder dies). However, although these can be expensive they are necessary, even between best friends, siblings or spouses.

For me (even though I am not an investor) this is the first flag I look for when talking with a new startup team.

Hope that helps.

Cheers,
Ashley.

PS If you are a founder and your co-founders don't want to discuss these things, e.g. alignment, in enough detail or formally, then that should be a flag for you as well. I've been burnt by this and (hopefully) won't be again.

Joseph Wang
2
0
Joseph Wang Entrepreneur
Chief Science Officer at Bitquant Research Laboratories
Investors in Hong Kong tend to be hard nosed about cash, so the thing that people look for are people that have looked at the numbers, know how much they need, what they plan to use it for, and have thought through what they should do when something goes wrong (and something will go wrong).

Something that every time should be prepared to answer are:

1) What happens if you don't get the money? The answer that the investor what's to hear is "if we don't get the money, we can't do X, Y, and Z, but we have enough revenue to stay in business indefinitely." Also "If we can't get X, then we don't do anything" is an acceptable answer.

2) What do you plan to do with the money?

3) What are the things that can go wrong, and what do you plan to do if things go wrong?

Also it helps to show that you know a certain field, and you have a team of people with different sets of expertise.
Andrea Raimondi
1
0
Andrea Raimondi Entrepreneur
Computer Software Consultant and Contractor
Hi!

I am not an angel or VC, but I have done my little investments every now and again. Personally, I think that being "investor-ready" is one of the real issues here, in that being "investor-ready" means - to me - that you give off a vibe that may not be real. In other words, you run the risk of sounding fake and that's massively off-putting.

Outside investment is a tool, you should be using it when it fits, not just because it's cool or because you think a million bucks will solve your company's problems.

Thus, instead of focusing on what constitutes being "investor-ready", focus on your business, its challenges, promises and actual and likely future results.
Of course, nobody can predict the future with even a 70% accuracy all the time, but some things are more easily seen as the lame ducks they are than others, which is really the only selection criteria that makes some sense.

So, my suggestions:

1) Focus on something you are passionate about and know a lot about
2) Ensure that your idea will not be mercilessly torn to pieces as soon as you speak about it
3) Carefully consider who is competition: if you produce mouse pads, your main competitors are fingers and pens.
4) Project your figures rounding up costs and rounding down income. This is a really good way to keep real, because costs are always likely to go up, whereas sales targets may not be reached for a number of reasons.
5) Remember the "per-day" customers: saying 1000 customers in a year means 3 customers per day including weekends. So, if you are creating a business product, chances are you won't have weekend purchases (or very few) and will have to make up for it during the work week.
6) Seasonality applies to pretty much every product: when a company is starting a new project, they will usually look around for tools and services. If your product or service can be easily integrated into existing workflows, then it has a competitive advantage because it can be purchased all-year round, otherwise it will only when new projects start. However, fitting a new product/service in current projects may require tweaks and trade-offs. This is OK, but you need to account for it and also to keep in mind that at some point a decision will have to be made on how willing you are to chase the old.

Have a good day
Natasha Homer-Earley
5
0
Natasha Homer-Earley Entrepreneur
Founder Gujiwo.com
Kim this is a really great question - why - because depending on who you ask, you get a different answer back. As a Founder I get really frustrated at the 'formula' investors apply to every single deal that crosses their table. Here is a example. This 2 Founder team rule. I've been in the space 21 years. I started building marketplaces back in 1999. Since then I've founded 2 mobile operators, built 2 marketplaces, ran the world's largest mobile marketplace & the world's largest App ecosystem. I've been CXO of 3 Fintech Startups $250m turnover & developed Startups for other clients. I am a advisor to Google backed Startups & Accelerators yet I still get asked why don't I have a Cofounder ? I still get told I need to get to market 1st, to prove I can execute. So investors can roll out the old line '' execution counts'' ''IP counts'' but in my experience, not enough to write a cheque. The only thing I have found investors value is being live in market with results. So forget the term ''Startup'', our industry is now the ''Seedup'' industry. This means people who use to be angels, side stepped to Seed, Seed side stepped to Series A. So the starting line for investment now starts @ Seed. So you either use a incubator to get to Seed ( live in market) or you find a sweat build partner. Just work off the assumption, your not going to get money until Seed, until your live & solve the problem of how to get live without funding.
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