Earn investors’ faith before making a penny

It’s tricky to raise money from investors before you can demonstrate you’ll make them a profit.

In order to raise money, we traditionally — and almost exclusively — rely on pitches, but most at this stage are 90% fiction that predict future financial gains from one kind of success — say, an award, acceptance into an incubator programme or a board member’s previous successes.

Add a business plan, but it, too, has no foundation per se. Really, it’s a hopeful fiction in another format.

Here’s a tip: business people believe what they can measure. So if you haven’t got any customers, show your investors meaningful milestones in your thinking that prove the soundness of your plan for the future. Most business people call these deliverables.

What sort of things count as meaningful deliverables? Activate Capital provides an excellent example in their programme diary. The value of each milestone might need a little decoding, so I’ll give you a couple of examples.

Week 1 delivered the value proposition canvas document. It details the collaborative, detailed thinking on the value proposition and market segmentation. The former are defined in terms of gains created and pains relieved. For each of the latter, we looked at gains and pains they suffer. Then we put them together to see how they fit.

This documents the first step in examining assumptions in product development as well as in the business itself. Over time this was developed and the document was updated until it integrated all other aspects of thinking about the business. So this deliverable not only serves as a record of what we thought originally but consolidates discoveries and progress in that thinking over time.

Now when Tomo goes to an investor with the interactive prototype (see Week 5), it doesn’t stand on its own. Week 1’s deliverable along with all the others demonstrate the rigour with which it continues to be considered, developed and modified.

It’s so much more than a bold narrative about what a company can do. It’s proof the founders understand business, and their market in particular.

As Tomo’s founders say, “If you can’t measure it, it didn’t happen.” For more on how this works, apply to our programme.