Founders are some of the most driven people I know! They fall in love with a specific customer they hope to serve, a specific pain point they hope to solve.
They, like Icarus, reach out and try to touch the sun. In their eagerness to succeed, they want everything to go faster! Product needs to get shipped faster, more people, more salespeople, more marketing spend. That’s why it usually doesn’t take long before they’re pitching investors on why their new product is the next big thing.
Now, if you find yourself in their shoes. Wouldn’t it be a shame that you might not get that investment just because you don’t understand what investors are looking for? Because you’re so focused on telling them your big idea and how it’ll change the world! Telling them about your mission and your team!
All while forgetting to tell them what they care about most: how you’ll turn their investment into more money. Because if you don’t, how many months can you really stretch your funds before calling it quits? Before you have to watch your vision die?
That’s why knowing what investors care about can make all the difference!
In this article:
- Here’s what investors are really looking for…
- Competitive advantage
- Make them drool!
- Care for a bite?
Here’s what investors are really looking for…
Your job as a founder (and that of your deck) should be to show the opportunity, while progressively reducing the perceived risk until it feels inevitable.
Like any great story, you don’t start with the punchline.
The best chefs also make you work up an appetite before they serve you your first dish. And that’s what we’ll do as well. We’ll make your potential investors greedy. We’ll have them begging you to take their money.
The first step of course being “showing them the opportunity”. You can’t expect investors to know what you – the expert – knows about the market.
So, you’ll have to show them the potential! How much is currently being spent in the market? What kind of products are being sold to solve the problem? How many buyers are looking to solve the problem at any given time?
If you skip this, your meeting will quickly turn into a Q&A session. You’ll be stuck fielding questions that undermine investor confidence instead of inspiring it.
Competitive advantage
Nothing inspires confidence more than being able to explain how you make money. The best way of doing that is by demonstrating what makes you different from your competitors.
Start by showing who’s already serving your market. The existing solutions, how do those companies make money, and where the gaps are.
Then use “counter positioning” to paint all of them in one corner: “The old way of doing things”. From there, walk investors through your business model. How it works, what makes it different, and why that difference matters to customers.
Next, show them your financials! If you can prove how you’ll generate above-market margins and how you’ll use them to grow and capture market share faster than your competitors… You’ll have them at the edge of their seat!
Nothing gets investors interested like a story that combines solid financials and a great product into a business model built to win.
Make them drool!
The final part of the seduction is the high point of the emotional rollercoaster you’re taking your potential investors on! It’s the phase of the conversation where you shrink the risk to a blip!
Investors hate nothing more than you saying: “here are 20 experiments we’re going to run with your money”, “here’s 3 people we think we should hire and who should be game changers for us”.
More certainty, less risk, remember?
So, before you ask them to invest, demonstrate whatever traction you have. Pre-orders? Commitments? Revenue? Test users? What are they saying? What are they paying? Are they staying!?
You want to show these investors MOMENTUM, that their money will scale what’s already working, not validate assumptions!
Leave them thinking: Wait! If this works, and everything points to “YES”, what happens next? What will my investment turn into?
Care for a bite?
At this point, you should see dollar signs in their eyes. But one question still lingers, and it’s important: “What kind of returns can I expect?”. They want to know how you’re going to turn that million they give you into 4, 8 or 10 million.
Enterprise value is often calculated as a multiple of revenue, or EBITDA, or SDE. So if they fund you, and you put that money to work to create value, the enterprise value should ramp up.
Your job is to make that future tangible. The path to the outcome clear.
If you’re going from one location to ten, the company should become roughly ten times more valuable. And investors can picture how their capital makes that happen. If the next round takes you from ten to two hundred, they’ll want to stay on board for the ride.
Sure, they’ll get diluted, but the earlier they are, the better terms they can get, and the more potential upside they have. So, give them a glimpse of the financial roadmap – future raises, timings, outlooks!
It shows you’re thinking long-term and that there are multiple points where they can cash out or, better yet, double down.
See, raising money isn’t really asking for cash. It’s about inviting people onto your train, giving them a seat at your table, to build something lasting together.
Did you enjoy this? Why not read other articles on funding?
