Knowing how to convince an investor is, therefore, an essential element of the panoply that an entrepreneur must have. In my career, I have had the chance to succeed in 5 fundraisers, each in very different conditions and contexts, all of which required convincing quite varied investors, from the business angel to the big American VC fund passing by the bank. Retail.
Know How to Assess your Need
Raising funds is like in life: if you don’t know what you want, you won’t get anywhere. Succeeding incorrectly assessing one’s needs is far from simple, and achieving business valuation is even less so.
However, before starting any real discussion, it is essential to have a very clear idea of the amount sought and the dilution envisaged. Not only will the size of the capital requirement orient you fairly strongly on the type of investor you are going to talk to, but any back co-pedaling may prove to be fatal.
Indeed, if you estimate your need at $500,000, you will base your business plan on this figure and explain to who wants to hear it why you imperatively need this contribution to succeed. If you realize that you have aimed too high and that you should, in fact, have made a smaller first round with a different strategy, a great balancing act performance awaits you! It is always complicated to explain that in the end, you will get away with both $200,000 and $500,000.
If you are not sure of your need, it is better to plan a drawer strategy by starting for example at $300,000 and ending at $500,000 thanks to the importance of the interest that you will have succeeded in generating. The dilution will often be, in the end, very close, because in a priming round the valuation is often deducted from the amount raised and the percentage that the founders are ready to leave. It is, therefore, not uncommon to increase the capital raised without actually touching the dilution.
In this regard, it should be borne in mind that the excellent negotiation of the clauses of the shareholder pact is as essential (or even more important) than the valuation obtained.
There is no point in playing a role, taking postures, or inventing a personality. What an investor will assess first, especially for a project in the development phase, is you, your partners, and your team. If you give a distorted picture of reality because you’ve been watching too much TEDx and you feel like you are zero, you will only get confused and confused.
Being authentic also means being vulnerable and showing your weaknesses. No supposed investor expects to see an invincible robot. Talking about things you can’t do is as important as putting forward what you have mastered. Being aware of one’s limits is a quality that will be appreciated by investors. There is indeed nothing worse than an entrepreneur who does not know how to ask for help, or who strains his muscles to hide his weaknesses.
By being yourself, you will show a constant and reassuring image.
This does not mean that it is useless to work on your pitch and that by coming as you are, hands in pockets, feet on the table, and dressed like a bag, you will give an irresistible desire to invest.
When you create and develop your business, you see opportunities everywhere. And if we did this in addition, and if we opened this market tomorrow, and if we launched a new range of products… It is beneficial for an entrepreneur to remain open and attentive to what is happening, but when it is a matter of convincing an investor it is better to avoid going all over the place.
An investor will already have trouble understanding what you are doing, analyzing the market, and modeling the different income assumptions. If you don’t stop chatting about all the incredible and magnificent things that you can do once the first step is taken, you will lose it.
You have to be very clear about your value proposition, and as simple as possible about your execution strategy.
To Know How to Listen
When you raise funds, you end up talking to dozens of investors, all with a different approach and understanding of your project. It will follow exchanges of the highest importance for the continuation of your project.
If you are not able to listen to what you are told, not only will you miss out on great advice, but you will also demonstrate to investors that you are not ready yet.
Rather than get upset and contradict yourself, try to understand why you are being told this speech. Perhaps you have explained it incorrectly? Perhaps you have omitted an essential point, so it now seems obvious to you? Perhaps also that the person in front of you is finally not so wrong and that it allows you to see your project from an angle that you had not perceived until now.
From my experience, the pitch presented to the first investor is significantly different from that shown to the last. There is nothing static about a pitch, and all the comments you receive will lead you to constantly rework your presentation.
Finally, knowing how to listen does not mean knowing how to be turned over either! If it is essential to listen well to hear advice, then it is necessary to sort it out and not take everything for real. Many will tell you that they do not believe in your project and that they will not succeed. Listen to them, then use this negative energy to your advantage, to show them how wrong they would have been for not following you.
Find a Lead
A lead in the context of fundraising is the investor (or more often the investment fund) who will take the lead in negotiating the parameters of the investment, the clauses of the shareholder pact, and the various due diligences. To have this “privilege,” he will put the biggest ticket on the tour.
Without a lead, there is no possible investment. Finding a lead is, therefore a crucial step in the lifting process.
A naive approach to the subject could be to try to do without the lead, to write the term sheet yourself, then to put in the syringe a basket of investors who each will put their little ticket to form a beautiful sum ultimately.
Unfortunately, as tenting as this approach may seem, it is not practical. When the investee will be persuaded of the idea, he does not have the patience and money to get to the root of it in the overwhelming majority of situations to test the arguments that are presented during the presentation. That explains why creditors so rarely materialize in the absence of a reliable guide that can make sure it is quadratic, conclude the final appraisal and finally seek to resolve all the terms in the shareholder agreement.
An excellent strategy to find a lead is to convince upstream an investor/entrepreneur with great legitimacy in your field. His presence will reassure the potential lead and help him to be part of the way.