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It’s a misnomer that there’s some perfect recipe for getting investment money for your startup. Bad products get funded all the time, while good products fly under investors’ radars. There’s no secret sauce for getting funded. There’s no perfect pitch length, no ideal deck length, and no single one-sheet that will seal the deal. Pitching an investor is about the sum of the parts.
According to noted investor and Gust CEO David S. Rose, angel investors and early-stage VCs combined will put money into an estimated 72,000 companies in a given year. (Rose notes that it’s impossible to get an actual number, so this is his best guess.) Sounds like pretty good odds, right? Well, it might be if there were substantially fewer than 452,835 startups competing for that money as there were in 2014.
There’s no magic recipe that will make an investor care about your product. If it were easy, everyone with half an idea would have a fortune right now to blow on bringing it to scale. But, there are a few things you can do that will make it easier for you to secure investors for your startup.
Every day, hundreds of startup founders all over the world send generic pitch emails to the dozens of investors whose names they got from spreadsheets that float through the startup world. Few of these get past the readers’ inboxes.
In the same way, you wouldn’t apply to 1,000 jobs that you weren’t qualified to do, it’s practically a sin to send a templated, general pitch to a sea of investors without targeting the ones who have the background to coach you to success. You can’t boil the ocean looking for the right fit. It’s tempting to cast as wide a net as possible. But, you can’t catch the big fish unless you know where to look. Hone in on a core group of investors to save yourself hours of time emailing and pitching people who were ready to say no before you even knew who they were.
Once you’ve decided on a group of investors, do your homework. Between AngelList, LinkedIn, company websites, blogs, and Facebook, there are thousands of ways to learn about investors. Figure out who might have the background and skills to truly understand your product vision. Dig deep to learn what impresses them, what types of innovation they like to see, and what drives their decision-making.
It’s easy to believe that you, the founder, have the lesser bargaining position. After all, the investor has the one thing you know you need: money. But, when it comes to your company’s investors, it’s important for you to exercise judgment. After all, these people want to know where their investment is going and will likely have a close relationship with you for the life of your business. Find someone with the right experience, the right passion, and the right attitude to help you grow your company. Don’t be afraid to say “no” if something about the transaction makes you uneasy. Make sure your investors are the types of people who are willing to weather a few storms along the way.
So, you emailed an investor out of the blue for coffee and feel discouraged by the fact that she hasn’t gotten back to you. Here’s the deal: You can’t treat investors like reservoirs of money. They’re human beings. If you want them to pay attention to you, then you have to make sure to offer something compelling in exchange. A five-dollar coffee probably isn’t worth it for a person who’ll have to take an hour to meet with you in between watching back-to-back startup pitches on any given day. Rethink your ask and offer something better.
If you’ve done your homework, you should know exactly the types of things the investor will find interesting. Be thoughtful in how you approach this person. In some cases, it might make sense to send over a market research report that supports the vision behind your startup. Or, you may be able to get an investor on your good side by offering a complimentary ticket to an industry event. Find a way to stand out from the crowd.
If you do ask for a meeting but aren’t quite ready to pitch, you should still have an agenda. Explain why your startup is right up the investor’s alley. Ask them what you need to do to improve its chance of success. Never forget the saying: “If you ask an investor for money, you’ll get advice. If you ask an investor for advice, you’ll get money.”
A warm introduction is the best way to get an investor to pay attention to you. And, don’t think an intro from your friend Billy counts as a warm introduction because he met the investor at an event and hounded that person until they connected on LinkedIn. Remember how when you were applying for colleges, a letter of recommendation to your top school went much further if it was from your state senator? The same deal applies to investors. Make sure your connection actually has a warm relationship with the investor and is willing to vouch for you as a founder.
You might think your product is great. But the truth is, almost anyone who has a startup believes their product is the next big thing, ripe for investor funding and destined for unicorn status. What you really need to do to impress an investor is prove your startup is great. In startup lingo, people often refer to this as “traction.” Traction can mean a lot of things, such as hundreds of upvotes on ProductHunt, thousands of backers on Kickstarter, or ten thousand paying users weeks after launch.
You can’t just say why your product is great, and you can’t just show investors why it’s great… you have to prove that the people who are most important in this transaction — the users — think it’s great, too.
Nothing blows a great opportunity like a shitty pitch. If you can’t articulate what your product is and who it’s for in two sentences, you have a lot of work to do. While there’s no perfect pitch time, I’ve heard from many investors that 30 seconds is all you need to make an impact. Ahem… what!?? Actually, when you look at a thousand pitches a year, the ones that are the most straightforward and concise will stand out.
Investors don’t just need to see your product… they need to see the vision for who you are, what you believe in, and why you’re the right person to build this company. You could have the most amazing product of all time. But, if you can’t prove to an investor that you also have the chops to make it succeed in the market, you’ll never get funded.
Go beyond the product itself and tap into investors’ emotions. How will this company make an impact? How will it be relevant over the long term? Why will it still matter in 20 years? If you can’t paint a vivid picture of the company’s future, then you’re going to have trouble raising cash.
There’s no set number of slides in a slide deck that will help you raise money. I guarantee there’s never been an investor who’s turned down a great deal because the founder had 11 slides instead of 10. However, if you’re expecting them to read 60 pages of information just to understand your product, there’s a problem. Keep it tight and impress the investors with your market and product knowledge.
Numerous investors have told me that one tell-tale sign of a founder who’s too green for an investment is someone who doesn’t know their numbers inside and out. You should know your monthly revenue and easily be able to cite churn rates, active users, and financial projections.
As a founder, knowing every little nuance of your company isn’t just part of the job… it’s the entire job. If you’re going out on a limb to ask someone for cash, you’d better damn well be able to tell them what they’re getting for their investment. The second they ask you about users and you don’t have an answer, you’re proving to them that you don’t know your startup as well as you think you do. And, if that’s the case, you don’t have a clear enough vision to build a successful business. Remember, angel investors want to know how you can make them 30x their original investment. If you can’t back up that vision with data, then you’re going to have an uphill climb to making money.
There’s an inherent tension in pitching: You want to make your startup look as good as possible, but you’re screwing yourself if you avoid or lie about the negatives. The harsh truth is that if everything were operating at 100% in your startup, you wouldn’t need money to grow. When investors ask hard questions — and they will ask more difficult questions than you thought possible — be prepared to address the issues but explain what you’re doing to overcome them.
You’d think this is the same thing as “Be honest,” but I assure you it’s not. You see, founders accidentally make up shit all the time. They claim there’s demand for their product, but their so-called demand is a just a bunch of signups they got from people who never actually became users. These entrepreneurs tell you they have a massive market when their market is actually limited to niche industries. They’ll say their business is growing rapidly when the truth is that their acquisition rate isn’t outpacing their churn rate.
Investors who have been around the block know when founders are making shit up, even when the founders don’t even know they’re doing it. At Founder Therapy, we sometimes have to remind founders not to believe their own bullshit. It’s incredibly easy to get caught up in this trap. Avoid it by making sure you analyze your numbers carefully or else be ready for it when investors call you out.
There’s a lot more that goes into getting an investor than expecting that the first rich person you meet is going to give you money. If you’re not ready to take these steps to find an investor, then quite frankly, you’re not ready for an investor.
To reiterate, there’s no magic trick to getting someone to invest in your startup. But if you’re well-prepared and take all the tips above to heart, you’re going to have a much higher likelihood of landing funding than others.
Investors look for people with a ton of promise who are driven to succeed. The goal is to showcase your ability to lead a company for the long haul. Do this by helping investors understand where you’re coming from, where you’re going, the next steps on your journey, and how their funds will help you get there.
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