Swimming with the sharks

And I mean that in the best possible way.

Swimming with the Sharks

Preparing to interact with potential investors is one of the most important things an entrepreneur can do.  I’ve been on both sides of the equation and it has helped me to be more understanding when a passionate entrepreneur approaches our investment company for financing.  I usually begin my response with, “Before I give you my initial reaction, let me just say that I admire the dedication, hard work and heart that you are putting into your business.”  Then I follow with much the same response as they would receive from other investors, which is often difficult for the entrepreneur to hear if the feedback is less than enthusiastic about their proposition.

The feedback is difficult to hear because it usually means more work, the possibility of failure at getting financed, a change in strategic direction and a lengthening timeline to being able to earn a living, let alone receiving a big payday at liquidity.  After putting years into a business idea, the entrepreneur has a hard time with rejection or negative opinions.  But the feedback is critical.  If I had taken more of that initial rejection as guidance towards improving the nature of the investment, my earlier attempts to finance a company would have gone smoother.  While the financing was achieved, I lost more hair in the process than I needed to.  As you might notice from my current hairstyle, my behavior change didn’t occur in time to keep my barber employed.

So in the interests of public service to my fellow entrepreneurs, here are some tips to help you improve your interactions with potential investors.  These guidelines are more applicable now than ever, given the current sketchy nature of the capital markets.  And what I’m about to share with you starts from the assumption that you do have a business idea that has merit, that there’s a reasonable chance for developing market acceptance, and you have the necessary ingredients, save money, to accomplish the plan given hard work and a little luck.

Tip One:  Know how the investor assesses investments.

If you don’t understand the business of investing, from their perspective and business model, you won’t know what they’re interested in learning about your business.  Not all investors follow the same model, even among VC’s who are probably the most similar to each other.  There are indeed commonalities among investor types, and you should know those of course.  But the differences are important as well.  Learn as much as you can about the investors’ motivations and model before you begin the dialogue.

Tip Two:  Investing is a serious game.

Don’t take the interactions lightly.  The proper attitude is the same as a professional tennis player who enjoys the game, but is tightly focused on every movement of the ball, every point, every strategic decision.  There is no time to waste.  Efficiency of communication and responses is appreciated by the investor.  Long, winding stories are not.  Inappropriate humor is not.

Tip Three:  Prepare well for the interaction.

I’ve been doing this a long time and I still learn through feedback from colleagues and associates regarding how I communicate in presenting the story of a business that we’re invested in to new potential investors.  You don’t have to accept everything as truth, but you should listen to anyone who takes the time to give you some advice on how you communicate your story.  Mock presentations, role-playing, practicing Q&A, etc., are all very valuable to honing the message and addressing the investors’ concerns or interests.

Tip Four:  Don’t take it personally.

A good rule for life in general, this tip will help you stay objective, keep your spirits up and speed you to the actions you need to take.  If you can adopt this attitude, you’ll waste no time on righteous indignation (“Those idiots don’t understand the opportunity!”), self-flagellation (“I’m no good at raising money!”), reverse elitism (“I’m an inventor.  I wish I didn’t have to ask for money from these sharks!”) or chasing the money (“I’ll change whatever I have to in order to get financing!”).  Remember that the rejection or criticism you receive has nothing to do with you.  It has everything to do with the investor’s motivations, perceptions, business model, biases, etc.  To avoid rejection and criticism, see Tip One.

Tip Five:  Investors are not perfect

The annals of business mega-successes are filled with examples of companies who went for years without proper financing because they couldn’t convince the best and brightest investment firms to put money in.  Then they got one or two significant investors and boom, you get Google or CISCO or Amgen, etc.  Investors aren’t any smarter than most other highly-educated, experienced business professionals.  They make lots of mistakes.  The track record for VC’s, as an industry, isn’t stellar either, when compared to the S&P 500.  Prior to the recent Wall Street high dive, over a 40 year period, VC’s were barely out-pacing that index by a couple points.  But investors are the decision-makers as to where they put their money.  Your best bet is to find the right kind of investor for your kind of company, and not to chase every avenue that might lead to financing.  Look for compatibility of philosophy, motivations, expectations for return and timing of liquidity, added value in experience and contacts, etc.

I hope these tips help you entrepreneurs who are beginning your journey.  May God help you for the choice you’ve made, and may God bless you for the risks you are taking to create opportunities for everyone around you.

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