Alejandro Cremades Contributor
Author of The Art of Startup Fundraising & Serial Entrepreneur
What makes investors take the leap and say yes to your funding requests?
There are no shortages of investment options being pitched out there today. Even those who want to get ahead and find off market business that are ripe for funding are spoiled for choice. So, what makes the difference between a yes and no?
While there are some differences or shifts in the weight put on different factors as startups progress through various funding rounds, there are definitely some constants to understand and master if you want to start spending less time pushing out your pitch, and gain more capital flowing in.
Even though expectations may change depending on the financing cycle of your company, the factors that generate interest from investors are for the most part the same which have been shared by some of the most successful entrepreneurs on the DealMakers Podcast.
Who You are as an Entrepreneur
This is far more important in the early fundraising rounds than later, but it is always a factor. As a founder you ought to be particular about who you are accepting as investors and co-owners of your company. Expect those with the capital to be even more selective.
Being likable is a nice to have. Though you must be someone they can believe in. Someone they can trust. Perhaps most importantly, someone who is going to stick it out, never quit and who will make good decisions, with their interests in mind.
In your pre-seed and seed rounds this is about all they really have to judge you on.
If you’ve got money to invest, the world is your oyster. You have the choice of tens of thousands of companies to invest in. Many are strong companies, with better balance sheets and collateral than any startup. Many have more famous executives and advisors on the board. So, they have to buy into the mission too.
They need to believe in the problem you are solving, and the possibility of you succeeding at solving it.
How Big of an Opportunity is it?
How big of an impact can your startup have out there? How big is the total market size? What is your total addressable market of that number? If you can say your startup has a much larger addressable market than Marc Benioff’s Salesforce, that has $10 billion a year in revenues and a $102 billion market cap, that’s something investors can get excited about.
The market will typically take one or two slides on your pitch deck. If your slides don‘t show your market being over $1 billion it is highly unlikely to receive excitement from sophisticated investors.
Don’t forget what their share and multiple on investment will be in a successful exit too. Few can pull off the golden 100x, but what about 10x?
Even if you’ve got a brilliant idea, a track record of resilience, lots of talent, sparkling data that excites, you know your industry and you’ve got the research to prove it – you’ve still got to shine in the presentation.
That applies to your intro emails and initial contact attempts. It applies to your live presentations. It really matters when it comes to your pitch deck. Presenting is an art form. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400M.
Though after your show is over, you’ve got to have the ability to back it up with solid answers to basic questions from investors. Even expect to be pushed to see how you’ll react, and what you reveal about your personality underneath.
If They Can Add Value
Not all investors will care about this. Some are just in it for what’s in it for them. Though there are other professionals who really want to be selective and invest where they can offer the most value. If they have other resources and connections that can scale and catapult the success of what you are doing, or even just lend some key expertise, you’ll both feel a lot better about the deal. They get significance and a return. You get the money to realize your vision.
Timing of the Market
The broader economy, media spin, forecasts, and the investors’ own finances, performance of their other investments and their own timeline can all be factors.
That can seem unfair and out of your control. The point is that it is your job as founder or CEO to anticipate this and find the investors who are the best matches. You may also need to stretch out your funding rounds or bring them forward to be sure you are raising at the optimal moments.
This is especially vital for new startups. It’s tragic to see how many wannabe entrepreneurs are out there every day, trying to sell something ‘new’, which is just a carbon copy of a bigger company already in the market. It’s like they never even hit a Google search once in their whole business plan building process.
That doesn’t mean you can’t disrupt a crowded field, or displace a bigger company (or get bought buy them) if you bring something really unique and valuable to the marketplace. You can.
Though, unless you are really the only one going to Saturn, and have more advantages, talent and trademarked IP that will put you there, you’ve got to show you are bringing something unique to the table. You’ve researched. You are aware of all the competition. You can show why you’ll still win. You’ve even tested and have some social proof.
Who Else is Investing?
Especially once you hit a series A round and beyond, you’ll often find this is one of the first deciding questions you get from investors. They want to know who else is in. More importantly, they want to know who is leading the round. That alone can be the make or break factor.
Later in the game, investments from and contracts with VCs, corporations and government agencies can be a big benefit.
It’s not just who is investing in this round, but who has invested before too. Even if all you’ve got are some friends and family and unknown individuals from a crowdfunding campaign, that helps.