Oftentimes, the very first meeting can be the most impactful. While each company is unique, over the years, investors have developed a point of view as to what separates the best meetings from the others. Fundraising is an exhausting and time-consuming process for all involved, so it is our hope that by sharing our perspective, investors can make your fundraising process a little easier and more efficient.
As an entrepreneur, time is your most valuable asset. In our view, the goal of an initial meeting – or any meeting – should be for both parties to achieve clarity as efficiently as possible, so you can focus your time on where it really counts – on your business. With that in mind, investors deem a first meeting successful for both the entrepreneur and investor if you achieve either:
Fundraising is a multi-step process, and the first meeting is just one step. If both parties are interested in spending more time with each other, you have successfully made it through the initial gate. Remember, you are evaluating the investor as much as they are evaluating you.
If you are unable to get to a second meeting, the next-best result is to get either a quick “no” or “not now”. That way you have clarity as to how to best spend your most valuable resource – your time. You want to know if an investor just does not invest in businesses like yours, or if you should circle back in 6-12 months when you might be a better fit from a stage or risk standpoint. If you receive a “not now” you will want to understand the reasons why and and when it would be a good time — based on specific KPIs or milestones. If the investor is positive about your business, but it is not a fit due to stage or sector, do not be shy to ask for names (or even introductions) to investors who might be a better fit.
Achieving either of these outcomes efficiently comes down to the information you share and how you share it — the topic of the next section.
Investors get it – you have poured your heart, soul and savings account into your business. In just an hour, there is no way to possibly get through all the unique aspects of your product, market, team, industry and vision. To make your first meeting successful and get to the second meeting, you must crisply focus on the highlights. Don’t worry – as you get further into the fundraising process, there will be plenty of time to dig into all facets of your company.
People are key to the success of any company. How did your prior experiences lead you to your company and equip you to make it uniquely successful?
Companies exist to solve problems. Investors want to be able to understand what problem you are solving, how valuable solving it is, and the size of the addressable market. Investors also want to understand why this problem has not been solved before and why your approach is unique and better than other approaches. Depending on the complexity of the technology underpinning the product, investors would like to understand your technology at a very high level as investors (2-3 minutes).
Acquiring customers efficiently with healthy gross margins is key to building a successful business. Different metrics apply to different types of businesses, but, in general, investors want to understand unit economics, customer acquisition costs, sales models, product pricing, and product margins. In addition to the future plan, investors also want to understand where the business is today. Data such as your current revenue and gross margin, number of customers, how those customers are acquired, and your sales pipeline are typically very helpful. Investors generally do not like to invest pre-revenue in business technology companies, but investors may do so in medical device companies in the clinical stage.
What is the plan to scale the business over the current and next year, by month, and what milestones will you accomplish? How much cash is needed to accomplish each of the milestones? Who are the key hires? If you do not already have an operating plan, you need to put one together.
Are you just starting the process? Or do you have a term sheet from another group and are looking to round out the financing? What are you looking for in your investor? Spend a few minutes getting in-sync on the process and next steps, so time continues to be used efficiently.
If investors move forward with an investment, it means they are planning on working together for as long as a decade or more. In addition to better understanding your company, investors are assessing how you might work together; and investors expect you will be doing the same. To that end, here are a few key traits investors seek out in entrepreneurs and management teams.
Do your research on the investor. Check out their current and past investments, as investors as their investment criteria, sectors, and themes (usually available on the investor’s website), and have an idea of how you align with their strategy. If there is a particular individual at the firm that has exhibited an interest or history of investing in your area, you will want to get to know that person. If you fit their broad thesis, but you are at an earlier stage then they invest, you may want to focus the meeting on building the relationship, getting advice, or accessing their network — versus asking for an investment. Also, there could be a business development opportunity with one of their portfolio companies.
The best teams that investors have met made an extra effort to listen to their customers, their investment partners, and each other. Investors have found that, as amazing as it sounds, customers will often tell you exactly what they need. Listening does not necessarily mean agreeing – but demonstrates that you understand questions and feedback and can launch into a productive, fact-based discussion.
Investors know there is a story that you want to tell and have likely told it hundreds of times. But investors also want meetings to be a dialogue, not a monologue. Be prepared to adapt to and answer questions, even if it throws your presentation out of the planned order. Seeing how you respond to such situations provides a window into how you work with customers and investment partners.
When there are multiple members of your team present, investors want to hear from them too – especially when discussing topics that they are most familiar with. Team dynamics are key to success in any business – but especially critical in the early, high-stress days of a startup – so investors are highly mindful of how your team contributes and interacts during meetings.
“I don’t know” is an acceptable answer to many questions. No one knows everything, especially in the early days of a startup. Honesty and openness are what investors are looking for in an entrepreneur partner.
Starting a company and raising funds is hard. In a multi-year, often very intense experience with your investment partner, you will want someone with you that is rational, calm, thoughtful, experienced, measured, and forthright. Pick your partners well. Do your own reference checking on potential investors. The fundraising process will take time, many conversations, and can often be frustrating, so be prepared for that. Remember, a “no” from an investor does not necessarily mean you have a bad business; it just means it is not a fit for that particular investor. Even if you get a hundred investors who say “no,” it only takes one to say “yes” to get your business funded, so keep persevering.
This article was provided by S3 Ventures. Visit s3vc.com for more information.
These materials and the information provided herein are for informational and discussion purposes only and are not intended to be, and shall not be regarded or construed as, a recommendation for a transaction or investment or financial, tax, legal, or other advice of any kind.
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