Investors are looking for three things: Team, traction, and product. At least ONE of these three things should be huge!
When one of my last startup ventures got into the Barclays accelerator in London a few years ago the above law held:
Team: One team hadn’t written a line of code but the founder had exited a company for around $10million+, others were ex-Google, Zynga, Yahoo, etc.
Product: Another team were very early but had designed a unique widget that could be in every supermarket in the world; another used machine learning algorithms to make language learning faster.
Traction: We were there as we were getting over two million unique visitors a month on our sites.
James Altucher said it best: It take six months to raise money in an AMAZING business, infinity on a mediocre business.
So, heed rule #1: Don’t look for investment until you have one of “the three” absolutely popping’ off.
If I had to choose one of the three, it would always be traction, followed very closely by a unique, defensible product (particularly if it’s a tech product that would be hard to build, or has a community, which also gives you a position of strength).
Also, your pitch will suck the first time you try, so don’t burn it on the best investors
Follow Guy Kawasaki’s dream slide deck process or similar, showing one slide each for: Problem you’re solving, the solution you’ve created, market size/opportunity, team, traction, etc.
Front load the deck with whatever is your most impressive of the three. example: “Before I start, let me tell you a little about our founding team” (If team is strong). “We’re growing fast and are already making £10,000 a month” (If traction), “Let’s dive straight into the product, it’s amazing” (if product).
Make sure it’s clear in your pitch deck how the investors will make a 10x return on your money.
If you are where I was when I was raising money for my startup you are probably f***ing desperate.
The problem with this is investors can smell that and will use it against you.
The way to inoculate yourself against lacking credibility is to have phenomenal market knowledge, and a vision for the future (make sure you talk about the future, people never think about that deeply enough).
If you’re spending time trying to hire someone to make the deck, you’re doing it wrong.
Use Google slides, black background, Proxima Nova Font size 40 or above (not many words per slide or people read the slide instead of looking at you), lots of nice pictures.
If you don’t know your material (very bad) you can just write out your talk on Keynote with the script which shows you your notes next to the slide. Sneaky.
Who should you raise money from?
The mafia (and gangs in modern day, to a certain extent) are looked upon favourably for “only going after their own”, i.e. generally only attacking people who have chosen to be in that lifestyle and have then messed up.
Have the same mentality with investors: Don’t work with people who NEED to make the money back they give you.
Investors are like record labels: They invest in 10 companies (bands) and only expect one or two to be massive, recouping the losses of the others and making a huge profit on the side (Adele, One Direction, Facebook, Uber).
THUS if you take money from institutional investors, they’re not gonna make you sell your house to give you their money back. I was once was offered a $1 million+ investment, then heard that anecdote and had second thoughts.
Established investors know “the game”
Likewise, if you borrow $25,000 off a family member or friend, that is a TONNE of money to them, and they will hate you for losing it.
The game is the game.
Your blood is their gold, and they expect you to work until near-death to make them they money, so they have to accept a few failures along the way.
NEVER COLD EMAIL INVESTORS. They hate it, and it doesn’t work.
Get intros from smart people in your network.
If smart people won’t give you intros, your product probably isn’t that good, always ask them WHY they think your idea will fail/they won’t recommend you.
Pitching events work BUT don’t do too many, as investors start to think “If they were that good, they’d be signed by now from someone at one of these events, there must be something wrong with them”.
I’ve been out of the game a long time, but, London: I got my advisor (ex-Facebook) who got me investment pitching at a Lions’ Cage event, and I also recommend Angels’ Den and City Meets Tech.
Angel Lab will give you money quickly if they like you, but it’s HARD to get in there, 5 or 6 members need to nod you into the secret room then you get to pitch them all, as far as I heard (I got 4 interested people but didn’t get into the main pitching room.
Start strong. Attend a few small pitching events to get your weight up and get used to it, practice your pitch VS people you respect on Skype, etc.
Have confidence and project confidence and voice, the amounts of money involved are so great that in this case small things DO matter.
Remember, brutality normally prevails where there’s large amounts of cash involved.
So, some thoughts on the process once you have an intro to an investor:
Details matter. Email signature, sending them documents etc. FAST after they request it, showing up slightly early. You have to play their game until you create your own
Concerned about writing this one: If you’re not a youngish (under 40) white male, consider the odds slightly against you. Multiple data points back this up. What does this mean in real terms? Stay on topic, don’t go off on tangents, acknowledge any differences and how they are an advantage, be extremely prepared for the meeting, etc.
You don’t have to be formal, necessarily, but you have to be somewhat serious and intense for a sustained period of time/read the other investor to see how to play this.
If you think this is bullsh*t, that’s fine, but it’s the same reason I assume everyone I speak to is on welfare: Anything above this is a bonus, so if you come correct and presume you’re up against it going in, you can pull in your focus for an outstanding performance.
After the pitch?
People always ask you how it went.
They want to hear “well”, or “badly.” If you can say “I gave the best possible account of myself” you can rest easy, whatever the outcome.
Caveat for all of the above: Strong domain expertise will make a lot of the above irrelevant: You can do a lot worse than bringing up some of Jay Abraham’s questions he asks new clients to see if they have a f***ing clue about the business they’re running.
Knowing the below will also protect you from some of the hardest questions an investor can throw at you (I’ll do a separate section on that below)
Who is your direct competition?
Describe your positioning in the market and why it makes you special
How do you sell? How do you know how well you’re doing?
What are your offers to entice people to buy?
What does your website/app/product do better?
Why do people buy from your competitors and not you?
Why is your price different to others?
How does your produce perform better than others in the market?
Do you know the mindset of the perfect prospect?
What are the alternative solutions available to your perfect prospective client?
What are the current trends in your market? Where is the opportunity right now no one else is taking advantage of?
How is your competition performing?
Getting deal flow
It’s often said that American investors love to be first in the round, while Europeans want to see others in first as they are more risk-averse. To presume the worst-case scenario, once again, let’s presume the latter. So how do you go from zero to bursting with investors?
Start with the above, a warm intro with a good pitch deck, leading to a meeting where you wow the investors with your future-facing ideas, and insane domain knowledge.
Now you need to start dancing with investors. Ask them at the end of the meeting if they want to invest, having already told them how much you’re looking to raise and what you’ll spend that money on.
If they say no, ask them why not, then ask what you would need to come back with (normally a better product or traction, sometimes a team member) for them to say yes.
Email them updates once a month.
SO, is great if they say:
I want to invest the full amount you ask for (then negotiate terms)
It is good if they say:
I don’t want to invest the full amount, but may come in for a little pending who else you get in the round. If it’s the latter, memorise the following carefully chosen words:
“So you’re saying if we can get another investor(s) in the round, you will invest”
If they say “yes”, you are off to the races, believe it or not.
Your next pitch begins, “We are XYZ company, our product is XYZ.
We’re looking to raise $X capital, and already have X committed. You have the other investors word, and that will do for now.
Now once you get the second investor on board with this promise, you knock on the first one’s door and say “I got the other investor, are we doing this or what?” If they back out, you still have the second investor which becomes the first investor and another “interested”.
Join the investors together in a glorious orgy you organised and let the good times roll!
Quick cheatsheet for raising money:
If you are running an agency, unless you have a super-innovative secret sauce or you have seven-figure revenues, don’t raise money. Get more clients.
Agencies only really get bought by other agencies, normally a nominal fee to acquire the talent working for the first agency.
Take advice onboard from people deep in the space: Raising money is an easy way to waste a lot of time if you are doing it in the wrong way, and can kill your company
Close the round as soon as possible and get back to running/managing your company
Ask me any questions you have about this process below/anything else you want to know in the comments.
Raised money already? what was the process and how did you pull it off?