Wednesday, September 12, 2012

Investor Rules of Thumb For Investable Entrepreneurs

Investors are people too. They evaluate you like you should assess a possible co-founder or first employee. What are your credentials? What have you done that would convince me that my money is safe in your hands? Only after they see you as fundable, do they want to assess your plan for fundability, not the other way around.

Even with great credentials, it is all too possible for an entrepreneur to come across as a high risk investment. Here are some “rules of thumb” that indicate a marketable and experienced entrepreneur:

  • Highlights team strengths, more than his own. Some entrepreneurs seem to never stop talking about themselves, and all their accomplishments. The best ones talk more about how they have assembled a well-rounded team, and will continue to fill in the gaps.

  • Talks about the implementation plan, not the idea. Most entrepreneurs are great at envisioning their business idea, but the implementation is fuzzy. Experienced entrepreneurs talk about their implementation and rollout plan, with real milestones and quantifiable results.

  • Customer needs and benefits first, then product features. The best entrepreneurs show that their market domain knowledge is as strong as their product technology knowledge. They are able to weave their solution into the market, the opportunity, and customers, in a way that sounds like a natural fit, rather than a product sales pitch.

  • Focus is clear, not all over the map. Success means the entrepreneur must be laser focused on driving the business, passionate about a product, and passionate about a specific set of customers. If the business plan reads like a smorgasbord of offerings, there are probably not enough resources to do any well, and customers will be confused.

  • Rational business model, with prices and volumes. Unless the business is a non-profit, the entrepreneur needs to show how he will make money. The days are gone when investors want only to see a large market share or growth in eyeballs. Are revenues and costs reasonable and projected for five years?

As an entrepreneur, don’t let your ego get in the way, or believe you can take the world on by yourself. If you want to attract investors, you must be willing to listen and work with others, as well as share your ideas or your knowledge. Loner entrepreneurs won’t get their foot in the door with any investor I know.

If you are young or inexperienced, and don’t have business credentials yet, don’t hide this fact. I recommend a proactive approach, to highlight the accomplishments you have, the power of other team members, and show some humility in admitting a search for the rest of the team.

So you might ask, how do first-time entrepreneurs ever get the funding they need to prove that they can perform at the next level? The best answer is to team yourself with someone who has “been there and done that.” After a team success, you’ll find all members are “promoted” to the next level.

Another common approach is to bootstrap your first startup to success, possibly with some help from friends and family. As I said in the beginning, investors are people too, so get out there and make them your respected business friends before you try to sell your idea. Business networking is not the same as cold calling with a hard sell.

Every investor knows a few good entrepreneurs, like Marc Andreessen of Mosaic and Netscape fame, who could get millions of dollars of funding for just about any idea. He needed Jim Clark to help him get a first investment, yet now Marc is a major VC in his own right.

In fact, I don’t know one investor who has funded a “million dollar idea” without regard to the person and the plan behind it. Think about that the next time you pitch your idea, and never mention the people.

Marty Zwilling


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6 comments:

  1. Great article, Marty! I especially appreciated the section after the bullets. I finished up school earlier this year and am working full-time, but am lucky enough to be starting a software development LLC alongside some great people I've known for a while. We're not looking for anything near venture capital, but certainly will be building relationships and looking for alternate funding sources. I've been reading your blog for a while now, and have been keeping an eye out for advice for young first-timers. I'm certainly going to take all this to heart.

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    1. I agree Mr. Barrow. This is a nice read Mr. Zwilling!

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    2. Evan and Marie, thank you both for the positive feedback. That means a lot to me!

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  2. This is a very classy piece. Its so very informative article. Any idea is very good, if done quite right.

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  3. Great & useful summary - you nailed it Marty!

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  4. I really like the first sentence of the post: investors are people too) And it's true, the best way to understand everything is try to put yourself on investor's place - would you gve money to some one easily? Nope. Of course you would like to see a plan nd a project which are really worth of attention and investment, they want to see that a project really can work and get as many guarantees as possible. And today when a funding questions is one of the most difficult - in some occassions payday advance online or business loan can be not enough, so it's important to use all these tips and learn more before applying to investor.

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