Investors need to make sure that you are a real miracle.

Recently, TechCrunch wrote about various venture capital theories. In the article, the author claimed that the analogue of a good investment is the "unicorn" , and even better is the "dragon" .

I remember various fantastic terms describing good investment opportunities, but they are best described in a fantasy style.

Being maximalists, venture capitalists not only believe in miracles, but are confident that good investments live in a world that is different from ordinary reality. When I read the article about the "unicorns" and "dragons", I realized that investors certainly want proof of your miraculousness.

Realizing this, many entrepreneurs are fixated on creating pitch presentations , considering receiving investments as nothing more than a fairy tale. In reality it is not. Experienced investors are always looking for evidence of consolidating their entrepreneurial fantasies in our market reality.
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When investors see a positive validation of a start-up model and a positive dynamic that a young company demonstrates, neglecting all the criteria, then they turn from skeptics into schoolchildren soaring in the clouds.

The biggest disappointment associated with the majority of “elevator presentations” is not in the presentation, but in the erroneous presentation of data that allows you to understand the foundation of the business, with the hope that the investor himself dummies as he needs. Nothing of the kind, do not fantasize, do not expect. Entrepreneurs need to understand that investment feet grow from an agreement for the realization of joint fantasies between an entrepreneur and an investor.

Let us single out, in accordance with the classics of the fantasy genre, the zone of interest of investors.

Team of heroes

Tim Draper (Tim Draper) calls his incubator and entrepreneurial dormitory - City of Heroes . Analyzing the team, investors pay attention to the conscious integrity, integrity, responsible attitude, ingenuity, resourcefulness and scaling order. When we hear the history of the formation of a company, we want to hear a story that connects the founders with market opportunities and gives them a competitive advantage.

When we watch team slides, we want to briefly present each talent and skill necessary for the development of the company. When we hear the founders come together, we want to see the connection, brotherly feelings and common goals that will allow the team to go through fire and water. We are looking for the special forces mentality, where each team member tries to bring as much benefit as possible in any uncertain situation. When we hear the history of the company, we want to see the skill that has reached perfection when operating with extremely limited resources.

When we hear how the company invested, we want to hear what the investment order will be after managers have found a way to test demand, consumer behavior, and economic growth models.

Innovation based on mysterious truths

As investors, we like companies that are based on market ideas that very few people know or may know. And, as Peter Thiel stresses, it is better if this knowledge is also somewhat contradictory - which will give the company time to create favorable conditions while others realize it.

A unique life experience, field of study or specialization can provide a solid foundation. I look at what I call “market empathy,” implying the ability to understand a client, his behavior and his needs. I believe that deep empathy is the source of most unique ideas. We also often prefer investments when we believe that we see favorable opportunities better than other investors; in this way, we can better evaluate or more effectively help the team.

"Beanstalk"

Some companies may simply grow faster than others, even with similar products and positioning. Sometimes several orders of magnitude. Investors are trying to understand the way out and barriers to entry and the benefits of customer acquisition.

Some companies have a well-articulated market strategy, more effective in acquiring and winning customers. Some teams purposefully create such strategies, but most find them by chance. Many of them are not even aware of their achievement. Investors, as a rule, identify similar “beanstalks” much earlier, because they have already met with similar teams.

One day the team will reach an understanding of their achievement and will simply grow even faster. The main difficulty in finding “beanstalks” is that they cannot be seen from afar, as their fabulous prototype. When an investor sees a “beanstalk”, he tries to invest immediately, before anyone else recognizes it.

Alchemy

The best investment opportunities, it seems, are so huge that they seem like completely undeserved, like an almost magical act of creating wealth. All revenue models, pricing strategies and profits are not created equal. In Silicon Valley, investing in Internet companies often means betting on a “beanstalk” without a clear pattern of its revenue.

There are rare companies that seem to have already found a magic money printer. I call them alchemists. Alchemists are very useful because the company can finance its own growth itself, and as an early investor you are less likely to suffer from the dilution of the company's capital.

"Kings" of a part or a whole

Profit in the markets is always unevenly distributed, such are the laws of market capture. The leader usually serves from 40 to 70% of the market, the next - half of the leader’s share, the third - half of the second, and so on to the niche companies that serve as the long tail of this distribution. Thus, the critical point of investment decisions will predict whether a poorly organized thrifty startup can become a “king”.

Fortune telling

Many large companies and market changes that they personify seem like historical inevitability. Not only do investors want to find a “king”, they need to anticipate a company that will become large and significant in the part of the market that is destined to become a huge part of the monstrously large market.

Investors spend a lot of time thinking about, building hypotheses, prophecies, assumptions, and sometimes even researching the future of markets. As a rule, they make sense when the doors of destinies and what binds these destinies are similar.

"Unicorns"

Eileen Lee (Aileen Lee) from Cowboy Ventures believes that the term “unicorn” can only describe 0.07% of venture capital companies that managed to make billions of dollars. Most of the profits in the industry come from several high-performance companies that could become market leaders with great market opportunities. However, most companies will not be able to become so.

Investors need to be sure that a company showing excellent growth can achieve a billion dollar valuation. Such companies are extremely rare and venture capitalists are in their continuous search, so the “unicorn” is perhaps the most appropriate mythical animal describing such companies.

"The Dragon"

John Backus from NAV.VC, in his article “Unicorns” vs “Dragons” , defines “dragons” as investments that can reduce investor interaction with the company to a limited liability partnership. From his point of view, now all investors are looking for "unicorns". By investing small amounts in highly valued companies, they lose sight of the fund’s primary task: gaining supermarket profits from limited partnerships.

Companies are always trying to formulate their pitch presentations in such a way as to create fantastic images in the minds of investors, but the insight of investors will always tell them the truth. You can never become an investor tale if you really are not her. You should immediately build a company as a fairy tale for investors.

It is ironic that the founders forget to gather and present evidence. They are not amenable to standard assessment methods. Capital raising is not a fairy tale, it is only about proving the viability of your company as an investor’s dream.