Raising Good Ideas To Maturity: Step 2

 In step one,
here, I spoke about the benefits of exposing ideas to potential investors as a
way of gaining information and confidence at an early stage. This is not the
same as approaching potential investors and asking for investment. But are
quite different processes and should have quite different outputs, and for that
reason alone should be kept quite separate. You may approach some of the same
people, or you may approach completely different people, but it is absolutely
certain that the time you go out asking for money you will need to be far
better equipped, are better prepared, and armed with a very focused message.

There are many, many, sites which will help you prepare for
approaching investors whether they are angels or venture capital funds. I’m not
going to recapitulate a heap of that learning here. Rather I’m going to talk
about some of the practical and personal factors that will make the difference
between success and failure during and after the meetings you have with
investors.

 The first one
is the simplicity with which to deliver the story. Time after time, and
rebuttal after rebuttal, it has become clear to me that the elevator pitch him
is simply far too long, but you almost need is a Twitter pitch.  Not five minutes, but 10 seconds, not one
paragraph but 140 characters.  Were
looking for first stage funding you absolutely have to be able to get the whole
thing across with as little jargon as possible in that shorter period of time.  You can use some jargon, and it is fair
to assume that a canny investor that you want to invest in you will be
reasonably knowledge about the sector in which to operate an all share some of
your common vocabulary. But simple English, out in simple terms, and a snappy
delivery is the most important thing here. The only way of reaching a simple
story is to cut out complexity, and the best way of doing that is constant
repetition in front of various audiences while you pay attention to the points
that they understand rapidly and to those that require explanation.

 The second is
your own personal resilience to challenges. You are going to be told “NO” an
awful lot.  You’re going to hear
him contrary facts, contrary points of view, and some flat-out errors but all
of those are going to be delivered to you with the sort of absolute conviction
that only a venture capitalist or angel investor can muster. You’re going to
need to learn the grace to accept the knock backs, without automatically
assuming that what they say is true.  
Whisper it quietly, but it is quite possible that those investors are in
fact wrong, and that your idea is a good one despite what they say. However,
you need to learn to nod, accept the challenges, and be prepared for a long
night of research to fill in any gaps that they reveal. If, in the morning, you
remain convinced you are going to need the mental resilience to go back and do
it all again. And again. And again.  A very sage investor once said to me
that in his opinion nothing got funded until the CEO has explained the idea to
99 people.  All that means that at
least with 98 people have said “no.”

 The third is
your ability to focus only on those investors who are actually serious, and not
those who will kill you with kindness. 
In my personal experience; many more good ideas are
killed by investors who say “maybe” and “perhaps”, than are killed by those who
say “no”. Therefore, after a reasonably sensible and polite period of
discussion, you really do need to cut to the chase and ask the people you’re
talking to some pertinent questions: have they invested in this sector, will
they invest in this sector, how much would they invest, and is this an idea
that they will invest in. If the answer is “no” you are in the perfect position
to ask why not and gain some useful information. If you meet with a solid “no”
then you are in the perfect position to ask them if they know of anybody else
who might be interested. But if you are met by a string of “perhaps”s
and “maybe”s then you are in real trouble and my
strong advice is to draw to a polite close and go and talk to somebody else.
I’m guessing that you’ll know what to do with the yes!

The forth factor is your speed of execution.  If you are lucky enough to get hold of
your VC’s own assessment sheet, you will probably see, in amongst all the
expected stuff about the market, the team, and the money, a little section on
the dynamics of the deal.  This is
absolutely because your own enthusiasm and speed in one of the things that the
investor is assessing.  If you move
fast, and by this I mean faster than anybody else who is also asking for money,
you will get their attention. This will also mean that
you will need to make sure that the deal is simple, that the league rules rider
pre-prepared, or In very simple, and that any syndication is also simple and
free of conflict. But – more than anything else – you need to be on the phone,
on the e-mail, and showing real assertion as you try to get the deal
closed.  Part of what is going
through your investor’s head good an assessment of whether you will also close
commercial deals and sales with alacrity.

The fifth factor is about the perception in the
marketplace.  Investors all talk to
each other, and the frequent jokes about sheep are terribly apposite.  They live in morbid fear of missing out
on a good deal as much as they live in dread of losing an investment. You need
to be the thing that they are all talking about at conferences, in the club, or
over breakfast at Bucks of Woodside.   By ensuring that you have positive PR in the Investor
marketplace (and you can influence this through your chairman, advisors, and
friends)  All
you can greatly increase your chances of being invested.  And as CEO, the job falls to you to get
out there be visible.

A sixth factor is the way in which you build momentum.  My personal experience is that Angel
clubs are a great way of doing this. 
Certainly this is one way in which works in the UK, where we have many
strong angel groupings in London, Cambridge, Oxford, Bristol, Yorkshire, and within
a short train ride to Brussels and Paris. There are two sweet periods in the
year in the late spring and the early autumn when a well-prepared team can get
a presentation in front of nearly 600 potential investors in a three-week
period by stringing presentations together across the various groups. For a
modest travel and presentation budget a business can generate real momentum and
build a more syndicate with leading angel investors very rapidly. Where it can
go wrong is in assuming that people have expressed interest will remain
interested and this is the true essence of momentum: you need to bring them
together physically in a room with a demonstration or explanation of the
business.    You and your
chairman can harness one good investor at such a meeting to close the
investment and get your business started.

 A seventh
factor is competitive bidding between investors.   It used to be that you could use competitive bidding
to really drive up your startup valuation. Sadly, in
the current credit crunch marketplace, pre-revenue technology and media
start-ups are appeared to start life with a valuation between £1 and £2.5
million, and there seems to be little one can do about it.  Having a really great board, and having
a deal in the bag will influence this but those numbers are more or less your
starting position. But competitive bidding can help you to close the finance
faster, and since access to capital is a key barrier to new entrants to the
market place, if you have the money, then you the company that is going to
succeed. Your job is to get that money quickly.

 And since I
like tables and matrices I drew up two of my own:

Scoring is

0 = hopeless

1 = needs real work

2 = passable, but can improve

3 = good to go

 

Step	Sub Step	Starting Score	Action to Improve
Simplicity	1 – refine 2 – precis 3 – present	2	Practice in front of 5 people who have never heard of the idea
Resillience	1 – accepting no 2- challenging data	2	Always ask for links or references, but value opinons
Focus		1	Followup all meetings within 48 hours, and in writing in 5 days, weed out timewasters once a week
Speed		2	Set clear timetable and stick to it, respond to interested people same day
Perception		2	Daily updates on websites, twitter and blogs Weekly ‘to say’ list for chairman and investors Targets list
Momentum		11	Arrange demo within 1 month, follow up next day, build syndicate in room
Competitive bidding		3	Chairman to build bids and ensure messages pass quickly

 

Feel free to adopt as you require.

 It may be hard
to let go of an idea which you have cherished for many months, or perhaps even
years, but it is critical that you set a timetable for the fundraising and that
if you have not managed to score a “three” in each of the boxes above and do
not have a syndicate with a lead investor, and a clear indication of a
timetable to funding within the timetable that you set for fundraising, then it
is time to go back and revisit the idea from scratch because something is just
not right. It may be that the only thing that is wrong is the time: many good
ideas are simply too early, and putting them on the back shelf on the market
and investor perception moves forward is not the worst thing that you can do.

The more you do this, the better you get at it, and the
wider your network of contacts will become. You may come back to some of your
early ideas three, five, or even 10 years later. Or you may
get funded by the first investor you talk to. Either way you need to
learn to enjoy the process and become efficient at it. It is just a process,
and it isn’t anything personal, there are no failures, only new information.
But I’m fairly certain that if you approach it as a positive experience you and
your idea will be better for it at the end.