How to attract investment in a startup. Part 1
Attracting investment can be compared, on the one hand, with the lifting of heavy loads and, on the other hand, with the construction of the puzzle. The larger the amount, the harder it is to convince investors to invest in the project. Most startups do not have enough experience in attracting investments and do not see the big picture. They are forced to act blindly, gradually discovering the hidden link between the scattered pieces of information.
So, and the behavior of investors sometimes they seem incomprehensible and unpredictable. Meanwhile, investors themselves often make not always a logical choice, guided not only by positive motivation, but also by negative motivation. This is the fear of the unknown: the fear of investing in a failed startup or not investing in a project that then suddenly takes off.
It turns out that startups have two options: trust their intuition and use the advice of more experienced people. Under the cut, we collected a few tips that are tested on real experience.
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Money can not buy happiness
At every step, we are told about how much money was invested in a particular startup in order for it to become successful. But don't you think that here the cause and effect have changed places? Rapid growth is what makes a poor company a successful startup.
Of course, there are situations where money plays a decisive role, but do not blindly believe in their omnipotence. Therefore, there is no direct causal link.
Do not try to sit on two chairs.
Not all startups think about how much the search for investment can distract them from working directly on a project. There is a period for seeking funds, and a period for work. If at a critical moment, when a fateful technological decision is required, for example, the project management is looking for sums with a large number of zeros, then the startup itself can turn into zero, without waiting for either the owner or the money.
Therefore, set aside a time when you are in fundraising mode, and when in operation.
If investors throw you letters and invite you to meetings when you are in working mode - refuse, postpone communication to a later date. Do not give in to provocations, because everything can end at the negotiation stage, and time will be wasted. However, nothing prevents in parallel to take an investment from a credible investor who offers to transfer money without further discussion. Common sense has not been canceled.
Establish new contacts by recommendation
There are investors who have not taken to startups familiar with them directly. Therefore, you should not encourage yourself and hope for contact if you have sent someone an email in order to acquire new contacts. It is possible that you will not answer. In this case, it is very important that you can be represented and introduced through mutual friends.
The most successful option when you are represented by a famous investor who worked with you. In addition, it may be other people known in the startup community: lawyers, analysts, reviewers.
There are also special sites through which you can be presented to investors, for example, AngelList, FundersClub, and WeFunder.
Consider saying no to you until you hear yes.
Many investors are slow to answer for one reason or another. They can speak with hints, abstract phrases that will sound reassuring. But this is only at first glance. After a while, they may abruptly refuse you.
Another common technique is to stop responding to emails. They are not ready to give an answer now, and moreover, they just keep you in reserve. But if they change something, they will unexpectedly answer you, explaining everything by being very busy.
This behavior can be explained by the fact that at any time the situation in the markets may change, which certainly affects the decision of investors.
The only way to hedge against the final stage of negotiations is to ask for a written confirmation that the investor agrees to the deal.
Consider options in parallel, but according to their value.
Negotiate with several investors at once. This saves time and makes it clear that these multiple options may have non-equivalent value. Do not focus on any one option. Think about what contribution each of these investors will be able to make to your project, and accordingly distribute your efforts in working with them.
If it is a large investor who can invest a lot, but delays negotiations, then its value is not the highest. There is a reverse option - a business angel, which will give a little, but very soon. And if this business angel still fluctuates, its value will fall even lower.
Do not hide that you are negotiating in parallel. Let the investor understand that he is not your lifeline, but simply a potential partner - one of many.
Find out where you are and where you are led
An investor at a meeting can say a lot, but not to say the most important thing: what is his plan.
Therefore, never miss an opportunity to ask the investor important questions when meeting:
• What else is needed to make a final decision?
• Do you need another meeting?
• What exactly are we going to talk about?
• How soon will it take place?
• Do they need to discuss all this with partners?
• Maybe they have some problems?
In order not to seem overly meticulous, ask questions in the guise of an inexperienced person who just wants to understand the situation. But if you see that they answer you reluctantly and evasively, it means that the investor is not yet particularly interested in cooperating with you.
Spare no effort on your first deal.
An important factor for many investors is the opinion of other investors about your project. If at least one investor has invested in it, then the credit of trust from the followers will be provided to you.
Of course, the first deal is the hardest. But the faster you achieve it, the easier it will be for you in the future. So do not spare the forces. It's worth it.
Avoid investors who do not want to be "first"
Sometimes it seems that some investors are more interested in not your project, not your business plan, but how much you are interested in other investors. When you start to dig deeper, it turns out that they just do not want to be "first." It happens that they say in plain text that they can change their opinion if they see that other investors have already invested at least a certain amount in your project. And if you do not have any major investments yet, then cooperation with these “modest” investors has no prospects.
Make up several business plan options
Why do you think many investors sometimes ask the question about how much money you plan to raise? After all, this is almost impossible to plan - the market situation is constantly changing.
In order to understand this, we will be transferred to a regular store for a while. The seller will approach you and ask: “How much do you plan to spend?” If you are going to give a gift to a friend, you do not know exactly how much you plan to spend. Of course, it is better if the gift is inexpensive, no more than about such a sum. Based on this, the seller will pick you something.
So are investors. They are simply trying to determine whether they can “pull” you.
Therefore, if you have a plan for any case, then you can answer the question of investors, simply by offering them several options for developments and your intended reaction to them.
But often there is an inverse problem - to present to the investor only the plan that is appropriate for his level. For example, you will set out your most expensive plan to representatives of a venture fund. A business angel - a plan more modest.
Best the enemy of the good
Whatever your plans, they should not be too bold.
For example, you would like to raise $ 500,000. This is ideal. However, you are sounding $ 250,000 to investors. And if it happens that you collect only $ 150,000, this will be a good and realistic result. But only in comparison with the stated $ 250,000. If you stated the amount you originally wanted, this could have a bad effect on your reputation.
Start small and, under favorable circumstances, you can always attract new investments, as you will give the impression of a cautious person and demonstrate the positive dynamics of the development of your project.
So, and the behavior of investors sometimes they seem incomprehensible and unpredictable. Meanwhile, investors themselves often make not always a logical choice, guided not only by positive motivation, but also by negative motivation. This is the fear of the unknown: the fear of investing in a failed startup or not investing in a project that then suddenly takes off.
It turns out that startups have two options: trust their intuition and use the advice of more experienced people. Under the cut, we collected a few tips that are tested on real experience.
')
Money can not buy happiness
At every step, we are told about how much money was invested in a particular startup in order for it to become successful. But don't you think that here the cause and effect have changed places? Rapid growth is what makes a poor company a successful startup.
Of course, there are situations where money plays a decisive role, but do not blindly believe in their omnipotence. Therefore, there is no direct causal link.
Do not try to sit on two chairs.
Not all startups think about how much the search for investment can distract them from working directly on a project. There is a period for seeking funds, and a period for work. If at a critical moment, when a fateful technological decision is required, for example, the project management is looking for sums with a large number of zeros, then the startup itself can turn into zero, without waiting for either the owner or the money.
Therefore, set aside a time when you are in fundraising mode, and when in operation.
If investors throw you letters and invite you to meetings when you are in working mode - refuse, postpone communication to a later date. Do not give in to provocations, because everything can end at the negotiation stage, and time will be wasted. However, nothing prevents in parallel to take an investment from a credible investor who offers to transfer money without further discussion. Common sense has not been canceled.
Establish new contacts by recommendation
There are investors who have not taken to startups familiar with them directly. Therefore, you should not encourage yourself and hope for contact if you have sent someone an email in order to acquire new contacts. It is possible that you will not answer. In this case, it is very important that you can be represented and introduced through mutual friends.
The most successful option when you are represented by a famous investor who worked with you. In addition, it may be other people known in the startup community: lawyers, analysts, reviewers.
There are also special sites through which you can be presented to investors, for example, AngelList, FundersClub, and WeFunder.
Consider saying no to you until you hear yes.
Many investors are slow to answer for one reason or another. They can speak with hints, abstract phrases that will sound reassuring. But this is only at first glance. After a while, they may abruptly refuse you.
Another common technique is to stop responding to emails. They are not ready to give an answer now, and moreover, they just keep you in reserve. But if they change something, they will unexpectedly answer you, explaining everything by being very busy.
This behavior can be explained by the fact that at any time the situation in the markets may change, which certainly affects the decision of investors.
The only way to hedge against the final stage of negotiations is to ask for a written confirmation that the investor agrees to the deal.
Consider options in parallel, but according to their value.
Negotiate with several investors at once. This saves time and makes it clear that these multiple options may have non-equivalent value. Do not focus on any one option. Think about what contribution each of these investors will be able to make to your project, and accordingly distribute your efforts in working with them.
If it is a large investor who can invest a lot, but delays negotiations, then its value is not the highest. There is a reverse option - a business angel, which will give a little, but very soon. And if this business angel still fluctuates, its value will fall even lower.
Do not hide that you are negotiating in parallel. Let the investor understand that he is not your lifeline, but simply a potential partner - one of many.
Find out where you are and where you are led
An investor at a meeting can say a lot, but not to say the most important thing: what is his plan.
Therefore, never miss an opportunity to ask the investor important questions when meeting:
• What else is needed to make a final decision?
• Do you need another meeting?
• What exactly are we going to talk about?
• How soon will it take place?
• Do they need to discuss all this with partners?
• Maybe they have some problems?
In order not to seem overly meticulous, ask questions in the guise of an inexperienced person who just wants to understand the situation. But if you see that they answer you reluctantly and evasively, it means that the investor is not yet particularly interested in cooperating with you.
Spare no effort on your first deal.
An important factor for many investors is the opinion of other investors about your project. If at least one investor has invested in it, then the credit of trust from the followers will be provided to you.
Of course, the first deal is the hardest. But the faster you achieve it, the easier it will be for you in the future. So do not spare the forces. It's worth it.
Avoid investors who do not want to be "first"
Sometimes it seems that some investors are more interested in not your project, not your business plan, but how much you are interested in other investors. When you start to dig deeper, it turns out that they just do not want to be "first." It happens that they say in plain text that they can change their opinion if they see that other investors have already invested at least a certain amount in your project. And if you do not have any major investments yet, then cooperation with these “modest” investors has no prospects.
Make up several business plan options
Why do you think many investors sometimes ask the question about how much money you plan to raise? After all, this is almost impossible to plan - the market situation is constantly changing.
In order to understand this, we will be transferred to a regular store for a while. The seller will approach you and ask: “How much do you plan to spend?” If you are going to give a gift to a friend, you do not know exactly how much you plan to spend. Of course, it is better if the gift is inexpensive, no more than about such a sum. Based on this, the seller will pick you something.
So are investors. They are simply trying to determine whether they can “pull” you.
Therefore, if you have a plan for any case, then you can answer the question of investors, simply by offering them several options for developments and your intended reaction to them.
But often there is an inverse problem - to present to the investor only the plan that is appropriate for his level. For example, you will set out your most expensive plan to representatives of a venture fund. A business angel - a plan more modest.
Best the enemy of the good
Whatever your plans, they should not be too bold.
For example, you would like to raise $ 500,000. This is ideal. However, you are sounding $ 250,000 to investors. And if it happens that you collect only $ 150,000, this will be a good and realistic result. But only in comparison with the stated $ 250,000. If you stated the amount you originally wanted, this could have a bad effect on your reputation.
Start small and, under favorable circumstances, you can always attract new investments, as you will give the impression of a cautious person and demonstrate the positive dynamics of the development of your project.
Source: https://habr.com/ru/post/285906/
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