as a wanna-be-entrepreneur i have been wondering what the investors want. what do they look for in founders? the products? when i cannot make a successful application to an incubator (ycombinator) how can i convince an investor to think that my product is worth his money, time and connections? i never even met an investor, how do they work?
i had these questions in my mind on a cold crisp night a month ago while i was working on my product and then i received a notification from twitter. alright, i lied. i was waiting for webpack to finish building so i decided to check twitter in my spare time. on my timeline, i saw a tweet from chris sacca. he looked familiar. i bet i heard his name or read about him. oh, he is an investor, his profile says. i go to his firm’s (lowercase capital) web site, read their stories and investments. in one of the pages, there was a video of him and mark cuban fighting on the shark tank.
shark tank is a reality show where “tough, self-made, multi-millionaire and billionaire tycoons” invest in companies that they think are worth investing and that they can help get big/ger and of course make some more money on the way. watching clip after clip on youtube, i decided to watch all the episodes because they were asking questions that i was interested in being able to answer and i really thought it was worth my time as i would learn pitching from the entrepreneurs and the way investors think from their actions and questions.
i am happy i did that. first of all, i learned how to calculate valuation of a company based on their ask for an investment. (money they ask * (100 / percentage they give)) i don’t know why i did not learn that earlier. watching episodes season by season, i realized that they had a pattern. they were asking the same questions, they were saying the same things, they were giving the same advices episode by episode but don’t be mistaken by the word same because there are also exceptions and same is the pattern. it had proven itself.
what do the investors want? “cut to the chase, i want to know it now!” you might say. that’s one of the things i’ve learnt from shark tank. you must be patient. you must be patient and you must work harder, not just hard. i am not in a position to give anyone any advice on the subject but i will share what i have curated from the episodes for myself. you can also just watch mr. wonderful’s summary.
a good enough pitch
they want a good enough pitch. a good enough pitch is a pitch that explains the problem, the way it is solved, competition, business model, growth and vision for the future very clearly. they must understand everything right then, right there. as robert herjavec put it, “it is not my responsibility to listen, it is your responsibility to make me hear.” here you can watch an excellent -elevator- pitch.
numbers
they want to know how big the market is, how much money is made so far over what time of period, how many customers are there, what the costs are, what the margins are and what the growth rate is. getting numbers out and getting them right is important. keep in mind, “huge is not a number.” (mark cuban)
business model
the investor should not try to define the business model, it must be defined before. they are more interested in the revenue, how and when they will get their investment back and how many times more they will get it back. they are okay with getting it in time but more importantly, they must get it back and in multiples.
valuation
the valuation of the company must be down to earth, “where gravity exists” (mr. wonderful) when the valuation and the numbers don’t add up, when the simple math fails, most of the time founders will not close the deal. founders can value the company based on signed contracts / deals, sale projections for the calendar year or next year but the numbers must add up.
founder’s background
they want to be sure that the founder has domain expertise. if the founder lacks the expertise but good at other things, they want to see someone with the expertise on the team. other than that they think the founder is way over his/her head. founders who have done similar things in the past or who are willing to learn has a better chance.
founder’s personality
they want to see hustlers. they want to see believers and who make people believe. they want to see sales people. they want to see nice people. they want to trust the founder with their money. they want to see whether the founder is willing to seize opportunities, is able to make good choices and decisions, has what it takes to build a great company. they want to see if they can partner up with the founder and they want to see if the founder is up for mentoring.
the idea / product
most of the time they want to invest in an original idea or an idea that would provide first mover advantage. more importantly though, they want the entrepreneur or the team to believe in the idea themselves in the first place. numbers might not be good, business model might not be good but when they see a terrific idea, they simply want to invest in it.
downsides
having downsides, other share holders, raising money before is not something bad as long as it is mentioned earlier and in honesty. investors who made up their minds about the founder and the product will try to overcome the downsides.
investor’s value
what they will bring to the table is really important for the company but also for them. they look how they can help founders and see if they can actually be of any help to them besides giving money. if the product is in a field that they have no idea about or not enough connections or no interest, they hesitate investing. it seems that founders should aim for investors who can also invest their time and experience along with their money and find the perfect investor that they fit together the best.
other readings
i’ve written this so called piece to come back and look at it, to test my writing and to show my fellow brothers and sisters in arms that we are expected to work more and harder and get great at what we do. there’s more. go ahead and read the following essays.
good luck everyone.
