The one key question every investor is guaranteed to ask. How will you answer it?
Investors are a fickle lot. Each has their own ‘ethos’ and criteria for investing, preferred industries, methodologies and stages of engagement. And having been in the game a for a little while, I’ve noticed, their own biases too. But there guaranteed to one question that almost every investor will ask if you approach them.
They come at this question in many different ways , almost as many as there colours of ‘white’ in the Eskimo language.
But before I give you the answer (or rather, the question), let me share with you why they ask. What you won’t learn — until you become one yourself — is that almost no investor I’ve met, including seed investors, wants to be “first”. But almost all Ive met are happy to “follow-on” from other investors.
So they want to know how much money you’ve raised previously, and from who.
- “Who else has invested”?
- ‘’How much has been committed to the current round?”
- “What does your ‘cap table’ look like?”
- “Where did you get your ‘last money’?”
Actually — there’s also a second ‘guaranteed question’ — “Where’s your exit?” — but I’ll save that for another article. For now, let’s stick with this first question.
What investors are typically trying to determine, is since your “great idea”, how successfully have you validated that idea in your previous approaches to other investors? And that question will be addressed using different language, but the intent is always the same.
- “What’s been your uptake?”
- “What are the key takeaways from other investors?”
- “how successful have you implemented the feedback you’ve received?”
- How much have you invested personally?”
(By the way, that last question is “Cash” — sweat equity doesn’t count, because its mandatory anyway- call it the price of admission to watch & learn the rules of the game).
What’s been the After all, if you’ve approached 999 others before them, they don’t want to be ‘the rabbit’.
Essentially what you are being asked, is “how much skin is in the game”, and is any of it yours, and how much of it is from the people in your 1st level connections.
This is the key theme. Unless you live in the world of engaging with investors on a regular basis (which is why serial entrepreneurs are so successful at raising money on 2nd & 3rd ventures — they do), then investors are 2 or 3 levels disconnected from you. Which means you had to reach out to them, either directly or through PR of one form or another.
But what about the people that know &/or love &/or trust &/or like you, or that you’ve done business with before? What about your “1st level connections”
Let’s flesh this out a little
When engaging with any type of buyer — and make no mistake, an investor is a buyer — you must get through 4 basic stages of engagement
- Desire and
And 5 basic filters, in order for a transaction to happen.
- Believe and
Fall over at any single one of the levels of engagement, or any of the filters, and you are done.
But you 1st level connections are probably through almost all of the filters, and you’ve got the capacity through that fact, to very quickly take people through the 4 states of engagement. Which begs the question in almost every investors mind as you are “pitching’ to them — “Why is there no other money in before you got to me?”
Investors don’t invest their money in ‘ideas’, or in people to invest in testing ideas. They typically either made it themselves, and therefore don’t want to lose it, or invested their credibility & reputation in securing other peoples’ money to invest, and therefore….don’t want to lose it. Starting to see a pattern?
Think about this.
You’ve grown up & have made friends with people, current and former classmates, you’ve got family (most likely), neighbours, and if you’ve been in a career for more than 5 minutes, you’ll have mentors, peers, colleagues, former colleagues, bosses etc. But none of them has invested? Why? And this is now where an investors head is at, instead of focussing on all the magical bells & whistles and pictures of dancing unicorns in your flash pitch deck.
- Why has all their network passed on this opportunity?
- Have they even bothered to approach them?
- Have they failed the trust test with them?
- Are the believable? And the big “elephant in the room” -
- What is it about this person that has caused their entire network on pass on them?
Right about now, about half of you will be blaming your circumstances or country of residence or life situation on the fact that you can’t get a single or group of investors from your network. And as valid as those excuses may seem to you, (they aren’t) it doesn’t change the fact that, in the mind of the investor of whom you are now in front of, you’ve fallen over at the very first hurdle.
Because if you can’t raise $100 each from 100 people that you know in order to get started, how on earth are you going to get $100 dollars each from the million customers for your venture to succeed?
But a few smart people reading this are starting to have the veil lifted. They are starting to see the opportunity of their network. And because they are likely ‘masters’ (or on the road to mastery), they’ll be saying to themselves, “if it is to be, it’s up to me”.
Investors really want to see that you have it “in the tank” — that when everything is on the line, and things are tough, you have the capacity to solve problems, and get the job done, no matter what. And that you don’t use excuses — that you accept responsibility for both the problem and the solution.
That’s what they are looking for. That’s who they really invest in.
Not technology, or business models, or value propositions or networks, or markets or audiences.
People. People who can get the job done, what-ever it takes.
So in order to attract investors, you have to become that sort of person.
So ask yourself.
- Why haven’t my friends (who say they love me) invested in me?
- Why haven’t my family (who probably do love me) invested in me?
- Why haven’t my network of peers, colleagues and mentors (who say they like/respect/trust/believe in me) invested in me?
When you know the answers to the questions (and can overcome them), you are on the path to greatness.
Because you won’t need to explain that to great investors or put it in your pitch deck, they’ll see it your cap table, and more importantly, in your eyes.
“To Your Success”, Daniel
PS. This is the 2nd of 60 articles in 60 days (I took a couple of days off). If you aren’t following, commenting, sharing, subscribing, liking (or hating) any of my other articles, then what on God’s earth are you doing reading this post? ;-)
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