As an entrepreneur, think about your startup, and ask yourself this question; “If I were an investor, would I invest in this business?” Now before you answer, read the question again, and focus on the phrase, ‘If I were an investor’. Would you think about your business differently?
As an entrepreneur, your key motive is to grow your business; to scale. And to attain this objective, a key component is funding. And the key player in this equation is ‘The Investor’. When we’ve interacted with entrepreneurs in the past, some of the questions that have often puzzled them are “What are investors thinking when they hear my pitch? What are the questions I need to be prepared to answer during my investor meeting?” The main reason for this apprehension is that entrepreneurs don’t really ‘understand’ investors.
The relationship between Investors and Entrepreneurs is a unique one – Investors are looking for the smart entrepreneur with the right mix of team, idea, market opportunity, unit economics and host of twelve Critical Success Elements that make a startup investable. Entrepreneurs, on the other hand, want Investors, not just for the money, but also for the deep wisdom that they bring to the table. Investors look at your company as one among hundreds that they see in the ecosystem – they look for and identify patterns in your business operations and potential growth. This perspective is very important and valuable for you to have.
Entrepreneurs need to understand that investors have a portfolio of bets and must prioritize to ensure they get a return on their portfolio. This portfolio has a mix of successes, potential wins, many failures and startup zombies, which are basically startups that are barely alive and hardly growing. So, they want to know exactly what happens when money goes in, how it is utilized, what it will create, how it will be kept safe from risk and how it falls back in their hands multi-fold. Remember, most venture capitalists are looking for a 10x return on their investment. Most are not interested in the 100 features your app has, or the special packaging your product uses for branding – what they are really interested is in knowing your ‘business’:
- How much does it cost you to acquire a customer? How much do you earn from that customer?
- What is the market opportunity for you? What is the addressable market size?
- What is the founding team’s capability? Do they balance each other in terms of soft and hard skills?
- What is key differentiation and is it sustainable?
- And answers to a hundred more questions!
The best way to become attractive to an investor is to be able to think like one about your business, both strategically and tactically. After all, you are the biggest investor in your own startup!
If you can develop a dual perspective: one of a startup entrepreneur’s and the other of an investor’s, you will be able to think about all the questions investors may have about your startup and answer them from an investor’s point of view.
One of our primary goals at Venture Basecamp is to make Thinking like an investor become second nature to you – this will help you not only with raising funding, but also in taking the right decisions to grow your venture into a successful, viable business. So, I ask you once more: “If you were an investor, would you invest in your business?”