Finding an investor is one of the most important and difficult parts of launching a startup. Without early money, a young company can die before it really has a chance to grow.
Unfortunately, too many entrepreneurs don’t communicate effectively with potential investors. They either do a poor job arguing their case—or that case isn’t particularly strong in the first place.
Here are the five fastest ways to lose an investor in Kansas City.
Thinking a ‘Slow Play’ is Intelligent
Instead of coming straight out and asking for money, some startups try to slow-play investors. They’ll utilize any number of pretenses to get a meeting. They’ll say they only want mentoring advice, a tour of the investor’s office or some other small favor—and then they’ll ask for a check somewhere between minute 10 and 20.
Make your intentions clear right from the start. If you can’t get the meetings without lying, there is a bigger problem. It’s probably this …
Having No Traction or Market Validation
This is by far the single most important thing that an investor looks for before handing over a big pile of cash to an early-stage venture.
Let’s start from the beginning: a business plan is nothing more than a series of guesses, which is why they’re practically useless if you’re a startup that’s trying to win over an investor.
You don’t know who your customer is, you don’t know exactly what they want, you don’t know how to spend dollars to find them—you only think you know. It’s your job as the entrepreneur to find the cold, hard facts about things like this using either no money, or the money of your friends and families to ascertain this information.
You do so using experiments—experiments that lead toward proof that you know exactly who your customer is, exactly what they find valuable about your proposition—and, most important, proof that you know how much it costs to acquire one customer, and how much that customer yields in profit.
Remember, investors aren’t gamblers. They don’t care about your vision. They care about how they’re going to get their money back, and then some.
Not Having a Team in Place
A high-quality team is one of the most important things that investors look for. They want to see past failures—relevant failures. If you’re a big-shot corporate businessman, you have zero relevance in the field of startups, and vice versa.
Not Understanding the Concept of a Startup’s Value
Even some of the loosest investors in the world won’t give a pre-money valuation of more than $1 million dollars to a piece of technology or early-stage company. Frankly, a pre-revenue, pre-working product with a pre-validated team shouldn’t be worth more than $500,000, especially in the Midwest.
An early-stage investor is taking on an extreme amount of risk and needs to be greatly compensated for his timing and gratitude.
Having a Bad Answer to How You’ll Spend the Money
Don’t even think about asking for money for advertising or marketing unless you’ve experimented with the exact type you’re pitching, for the exact business. Meaning, if you think radio is a good idea, you better have bought several thousand dollars worth of ads on your own dime and watched a 2X or more return happen. If not, you’re still guessing how to get customers, and that’s a game that investors don’t want to play with you.
If you’re still in your first year, it’s not acceptable to pay yourself a salary yet either. It’s your job to live on your parents’ couch, eat their food, live off savings, bartend in the evenings or whatever it takes. A salary is the same thing as the advertising. You haven’t proven that your salary, or that of a teammate, is worth more than what you’re paying. Once you’ve validated that Person A is worth Person A’s salary and profit … then ask away.