After having founded my first start-up and having worked on the investor side for a bit I realized that investors expect things that most of us founders don't usually think about. Here are four of the most common things we usually don’t think about that will help us to better understand what investors want and how to convince them of our ideas.
- Time. Investors are usually very busy and don’t just have to handle a lot of business plans and pitches, but they also have to make sure that their current investments do fine and grow according to plan. That’s how their success will be measured at the end of the day. So instead of sending twenty pages long business plans and highly complicated excel sheets make sure to keep it as precise and as simple as possible. An investor should see and understand your venture’s potential in less than 5 minutes. Otherwise they might just move on to the next one.
- Interest. An investor’s interest is usually hard to get. But there are ways to increase the probability to strike their interest. Having a door-opener slide deck with the following parts might do the trick: the problem, your solution, why it’s the right time to solve the problem, why you are the right guys to solve it and most importantly the current KPIs for your proof-of-concept. A best case scenario would highlight synergies to existing portfolio companies. Biz dev deals between portfolio companies and your venture will increase the revenue of involved companies and ultimately lead to an increase of the investor’s entire portfolio valuation. A win-win situation.
- Risk. Investors make decisions like you and me. A risky investment has to have the potential to yield in a higher ROI. A risky investment for an investor is a company with limited to almost no market traction and revenue at all. Hence, your company’s valuation will be rather low. This means that an investor will want to get a significant amount of equity for a low valuation to compensate his risk. This means less money for you to work with. Already having significant market traction and a paying customer base does not only mean to lower the investor’s risk, but it will ultimately lead to a higher valuation of your venture. More cash for you to work with and more shares remaining under your ownership. So go and decrease a potential investor’s risk and ultimately increase the amount of cash you can work with.
- KPIs. Investors love numbers. But what they love even more than numbers are numbers that are not based on pure assumptions. Numbers that were collected out on the market are the ones they particularly love. These include your conversion rates, your cost of customer leads, the cost for paying customers, your customer's lifetime value and your current monthly burn rate. The more numbers you have, the better. Use these to show potential investors that you are working on a valid business opportunity. It will help investors to better quantify your potential and allow them to crunch the numbers and see how far you might get with their investment.