I know it might seem absurd to talk about love and investing in the same breath, but I find that while founders are quite good at creating a product, they’re often not very good at raising funds. I think part of the problem is their approach . They naively assume that all that investors are looking for is a return on their investment , and that their primary focus is to make a lot of money . While this is an important goal for angels, this is not the only lens through which they look at the world.
Thus, investors are mature enough to know that it’s impossible for them to be able to identify which founder which succeed and which will fail. Investing can be a bit of a crap shoot because there’s so much uncertainty involved.
This is especially true in an early stage start up , where the only thing which an investor has to go by is his assessment of the founder. Since there is such little tangible data, most angels have to follow their gut feeling.
This is why you need to get the investor to fall in love with your company. Now this might seem counterintuitive. After all, aren’t investors hard-headed rational businessmen, who only look at cash flow and ROI ? Shouldn’t the purpose of your pitch be to show them how you will multiply their money , so that they agree to fund you ?
The truth is that no matter how intelligent the investor may be, the reality is that you need to appeal to his emotions before you can engage with his brain. Just as the way to a man’s heart is through his stomach, the way to an investor’s wallet is through his heart.
Part of the problem is that because founders live and breathe and think about their start up 24/7, when they make a presentation they start off by spouting jargon or talking about the sophisticated technology behind their clever solution. They suffer from the curse of expert knowledge and try to dazzle the investor with lots of figures and tons of research. They forget that most investors will discount all your projections, because they know that these are just a result of spreadsheet jugglery in which future revenues invariably grow exponentially to infinity.
In order to engage with an investor , you need to start from where he is, and then take him to where you want him to be . In order to do that, you need spark his interest, grab his attention, and the only way to do that is by telling stories . Is the problem you are solving one which he may have encountered personally ? Try to understand his worldview, so that you can map your company onto this, and he can see where it fits, so that he understands why your product is valuable. Talk about the pain points your product solves for customers, and why they will be willing to pay for it .
It’s a good idea to start your presentation by asking a provocative question to which the conventional answer is wrong. If you can show the investor why your contrarian hypothesis is correct, he is more likely to respect the depth of your expertise. He will be more engaged , and if it will be easier to walk him through your solution. Your goal should be to leave the investor smarter and better-informed about your field at the end of your presentation.
The bedrock of any healthy relationship is trust, so please don’t try to bluff. If you don’t know, say so. Don’t try to pull a fast one or take the investor for a ride – this will backfire !
Please display your personality. Your investor is human, just like you are, so make it easy for him to connect with you. This is why storytelling is so important, and if you are truly passionate about what you are doing, all you need to do is to make sure your enthusiasm is contagious !
You should highlight the areas of uncertainty in your business model , and what experiments you plan to run to fill in these gaps , towards the end of your presentation. This shows that you are aware of the fact that you don’t have all the answers, and are humble enough to be willing to learn. Try to get him to provide possible solutions. Most investors are opinionated, and if he feels he can contribute his insights to help your company to succeed , he’s more likely to buy your pitch , because he will then have a sense of ownership in your startup.
An an angel, I try to fund founders whom I can fall in love with – those who want to improve the world. Yes, I do want to make money , and I feel the chances of my doing so are higher if we trust and respect each other, so we can ride out the difficult patches together .If I am passionate about the startup, I am sure this shows when I talk about it to other investors, who are then much more likely to provide follow on funding.
Founders need to remember that if an funder is emotionally invested in your success, he will be far more likely to want to be financially invested as well !