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Startups: tips on investor conversations

Posted by Ian Brookes on 24/04/17 08:02

Every startup founder understands the importance of meeting with potential investors, and the need to make themselves memorable, drive home their startup’s product’s value and stand-out in the queue of other entrepreneurs seeking investment to kick-start their dream.

However, working out how to build a platform for the meeting, and trying to create and control a compelling conversation where you feel you've done yourself justice, is another matter altogether

With the medals and scars from my personal experience from over twenty years of fund raising, I’ve learned that having a step-by-step approach, scripting and structuring the content, enables you to deliver your key points in a coherent manner – and have a wash-rinse-repeat formula for other conversations too.

Without developing your script and style, each meeting can be ad-hoc and become messy and unstructured. Whilst you need to be spontaneous and fresh so not to become robotic, having a disciplined approach is essential.

Here’s my thoughts to speed dating investors on a first meeting, where every minute and moment counts.

1. Know your audience Like all good marketing and sales conversations, the startup pitch begins before you say a word. It starts with research of the firm and person you’re meeting, and crafting a personalised strategy.

Firstly, you have to understand their interests. Do they have knowledge of, or hold investments in the sector? Adjust your content according to their background knowledge.

What type of startups do they invest in – pre-revenue, early revenue, or at a revenue threshold? Have they had successes? If so, figure out their priorities and focus on addressing them.

2. Don't jump in with both feet – break the ice When you start the conversation, your first instinct is to jump straight into your pitch, with a combination of enthusiasm and nerves. However, instead of launching into your opening statements, start by asking them one question: What is the most important thing you want to make sure I cover with you today?

This answer is really helpful in focusing your conversation. For example, if they ask about market size, you’ll know to spend time covering it. If they ask about your team, you’ll know where to take a deeper dive.

Find out what caught their eye. Investors see thousands of new ideas and sit through hundreds of pitches, they’ve heard and seen it all. The fact that you’re here in a face-to-face in-person meeting means that you are doing something new that has caught their interest.

I’d open the meeting with, something like before we get started, can I ask what specifically caught your eye? – because that becomes your hook for the rest of this meeting, and a point of reference for other future investor meetings.

Opening with this question also gets them engaged early in the process, before you’ve begun to really pitch. It helps to set a tone for a dialogue and a more intimate conversation, not simply an interview.

3. Be open, transparent and engaging – but get to the point Start by building rapport, let them get to know who you are and what you’re about outside of your business personna. Investors want to know your character. They’re looking to reduce risk and ultimately invest in you first, then your idea.

The first meeting shouldn’t just be about money, it’s important to make sure you get along on a personal level to begin to create mutual trust, the basis for an ongoing relationship and ultimately lead to an investment.

Beginning with a causal conversation engages them person-to-person, it’s not a speaker-listener mode. That connection can be persuasive by making both parties feel at ease with each other. My personal rule of thumb when meeting someone is to ask myself: Is this someone I could work for?”

However, don’t let the conversation prattle on. Keep the personal introduction to a few minutes tops, and then get into the meat of why you’re here.

4. Start with a simple and succinct tagline Get to your core with a strapline and short explanation about your product. Right out of the starting block you need investors to know what they’re looking at – and do the work for them, make it easy for them to understand. They want to understand why a customer would buy your product, so make it simple and clear.

Working with startups, I often use the metaphor of The North Star, used for navigation since man began sailing, and applying it to startups to get clarity about our purpose, and what we do for a living to provide customer value.

A good tagline should be ten words maximum and capture your company’s purpose in a memorable way. You need to explain what your company does in less than ten seconds, in simple, clear language anyone can understand.

For example, We make personal international money transfers easy, secure and cost effective is a clear, straightforward explanation of your service. As opposed to We enable mobile bitcoin monetisation transaction through international arbitrage using a distributed AWS hosted cloud-based solution with an asynchronous transaction engine written in Scala, which is a mess.

5. Take a step back – tell them the problem you are solving The temptation is now to unpack your product in detail, but my view is don't talk about your solution, talk about the problem you are seeking to solve.

When you take this approach, you are showing investors that you understand the problem that customers face, and that why your product is the best solution to it.

You need to be able to describe the specific problem, and your product’s specific and differentiated value in a way that anyone on the street could understand. Think and talk from a customer’s perspective.

6. Tell your product’s story – show the customer value You’ll be tempted to show off all the features you’ve spent time developing but investors only care about the problem your product solves, and why it’s the best at solving it.

The most powerful way to explain your product’s value is with a story, how you, or a ideally a third party, experienced this real life pain point, and how you spotted this opportunity to build your product to fix it.

You want your story to be authentic and approachable. It should make your product’s value obvious, and it should engage investors on a personal level such that it gets them thinking ‘I get it’.

Its now appropriate to explain your product benefits for customers - not its features. The difference is this:

Benefits: what your product helps customers accomplish. e.g. The iPod puts 1000 songs in your pocket.

Features: What your product does. e.g. The iPod is a digital music player with 1 GB of storage.

These benefits are why customers will buy your product, generate revenue and grow your company, which is an investor’s primary concern.

7. Unpack your learning journey Stories without contrast are not interesting, and investors want to hear about your ups and downs. They want to hear how you struggled early on, what roadblocks you hit and how you overcame them, what customer conversations, pivot, iterations and learnings you’ve had along the way.

These contrasting points make your story memorable, identifying staging points in your entrepreneurial journey, which should be a primary focus in your pitch.

Being memorable alone is not enough, once you’ve engaged investors with your story, you need to convince them that your solution is gaining traction in the market – and again it’s not just about money.

8. Discuss your dashboard of metrics This has the potential to be a defining moment, a fork in the road. Do your metrics point the way to product-market fit and creating a revenue stream, or do they highlight some gaps or stumbles between your story and an underlying reality?

Start-ups are unique because of their ability to scale fast, and typically go through three stages – traction, transition and growth. Each of these stages requires different metrics.

Equally, when you talk about your metrics, you have to ensure they’re integrated into your company’s story. You can’t just say “We have 1000 downloads.” Without context, your metrics don’t make sense.

In general, the further down the customer traction journey a metric comes from, the more valuable it is. For example, having 20,000 downloads doesn’t mean you have 20,000 customers right now. Your active users, on the other hand, show how many top customers you have right now.

9. Highlight your potential growth and levers to become cash positive Being knowledgeable about the size of your addressable market is vital here, and then how you will gain market share to grow, scale and become cash positive. Explaining your product’s value is one thing, showing how that value becomes revenue is another.

Your startup needs one amazing thing that makes it a real winner, and this is your competitive advantage. More than that, you need a clear path to converting that advantage into profitable customers, and evidence that you have a plan to achieve this.

Investors aren’t just evaluating your product, they’re evaluating you. They need to have faith in your commercial skills to make this happen. Can you take a good idea and turn it into a scalable, sustainable business?

10. Focus on your team Investors will look beyond you to see that your story is more than a great person with potentially a great product, they want to know that you have a team with the skills and experience to make this happen. And it’s not all about the glory of growth and success, they want to see that when things looked like failing, your team has the grit, resilience and backbone to keep the thing going.

Investors are also particularly interested in teams because startups pivot all the time in search of opportunity, but the core team usually remains consistent.

11. Making a sharp exit - wrap up and walk out of the room Now that you’ve concluded the conversation, you need to make a clean exit. You’ll want to deliver a brief, succinct summary of the conversation in a few sentences. As a closing technique, use a memorable phrase, possibly reworking your opening line to include metrics. This can turn into a Ricky Gervais moment, so be sincere but clear. People remember the last thing you said.

There maybe some random questions as soon as you finish and walk out of the room. Stay confident, keep your body language and voice calm, and bring the conversation back to your company’s core customer value proposition. That value is what investors care about, not just the flair of your presentation.

12. Will we see each other again? Finally, you’ll want to have a strong call-to-action - what are the next steps to follow up from today, and make sure not to leave the room without understanding specifically what is going to happen next and on what timeline.

I had one investor say to a startup I was working with say I look forward to talking with you again in three months after you’ve secured those five more customers, because I know you’re going to make mistakes and learn from them. So call me again when you’ve experienced those mistakes.

This was invaluable, it gave us clarity as to our focus and priorities, set the rules for us to get that second meeting, and if we gained the five additional customers, we had a clear line of sight to securing the investment we sought. Sometimes the most useful parts of conversations with investors are not about the money.

Good luck in your next meeting.

Topics: Cake Invest

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