Audition Your Investors

People always say that it’s not JUST about money, it’s so much more than that. And you think, “OK, that’s easy to say. But when I need money, I need money.”But then you say, “Well, on second thought, you make a good point. But then what is the “more” part?”

Let’s talk about that.

Recently I’ve attended roughly a dozen seminars and talks for tech startups, listened to many investor panels, and spoken with a lot of investors, (co-)founders, and entrepreneurs of all stages from both past and present. Through my philosophical lens, I’ve integrated these experiences with the stories of my previous clients and examples from my life, which led me to a few insights about the mindset and strategies for a startup currently raising capital, and how these factors influence the outcome.

So what’s the deal with capital? Well, without capital, how will you continue to develop your product, how will you sustain yourself along the process, how will you push your product or services to the market, and how will you continue to generate revenue to continue growing your business?

But capital is not just about getting money, even if that’s the goal, that is not the mindset. So what are other ways to conceptualize this process?

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Ok let’s start out this article by building some context:

When I say entrepreneurs, I’m referring more to startups than small businesses, and the two share some distinct differences in their mindset and approach, including that startups anticipate quick growth, have mostly venture capital firms and angels, plus planning for the exit. Of course the two can mix, but I will speak more from my experience interacting more with tech startup founders, CEOs, and investors, and of course many have been multiple of these or all three at one point or another. So remember that labels are fluid. 

Entrepreneurs get funded in a variety of ways.. There are more “organized ways” which is what a lot of people talk about Venture capital, , but you also have angel investors, friends and family, and of course, from the customer. Then there are grants, such as business innovation research funding, SBIR, etc.Then there are crowd sourcing options like Kickstarter. And of course there’s always loans, notes, and self-funding (I may be missing some). 

I consider an investor as anyone who is devoting their resources (money, time, energy) in anticipation of or have at least a glimmer of hope for your future success so that they can receive a return of sorts, whether it’s your mother who just wants to see you happy, your friends who can finally count on you to buy the next round of drinks, OR the type of investor and expected return I will be referring to in this article is a written, arguably most obvious, and instantaneously triggered definition, which is that an investor is “any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns.”

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So let’s talk about money. Because when it comes to money, there is a power imbalance between those who have more to offer, and those who need to receive. Blatantly said, sometimes people get down right needy and desperate – not very attractive qualities. Investors like to know that when they give you money, they better not lose money, but they actually want to make more money, preferably a lot more money. If they give you one million, they want that one million back, plus an additional five million, that’s six million. So as they listen to your pitch, your ability to convert your value into currency is pretty important.
So even if you are days from being broke, how can you maintain negotiating power, which at the core is a mindset:

Audition Your Investors. 

Here is what I mean:

A. All sources are not created the same.

One of the most talked about points I’ve heard from investors is that entrepreneurs should be careful when selecting investors because they can fire you but you can’t fire them. These are people who you’ll have a long-term relationship with. What’s also important is to have a match between the financing source and where you are in your stage of development, the potential of the future market, the personality of the team, etc. Venture capitalists care less about the amount of money you are asking for and more about their expected returns, because they have their own investors to answer to and to ensure future funding.

With that said, every investor is aware of the odds of success for startups, which is that 9 out of 10 will fail. So why do they do it anyways despite potential losses? Because they want to find the 10% who are successful, and minimize the amount of pain from the other 90%  So they may consider more than your tangible products, but also looking at the team, looking at who YOU are. Because even if your first business is a failure, there’s the next one. But if they see that you have the intelligence, humility, grit, commitment, and authenticity towards all areas of your life, including your business and relationships, some are willing to invest in your future. I know, this sounds warm and fuzzy and somewhat idealistic, but think about it, wouldn’t you rather bet on the team that’s been through the grind before, came out on the other side, and is still pumped to try again?

But sure, all investors appreciate quick and huge financial success, although some more so than others. An individual’s investing philosophy can dramatically impact your company’s future growth decisions, pivots, and market selection. Some investors are more hands-off, while others are more controlling, but they each have stylistic differences which also varies by situation. If you are a startup that is building momentum and eager for exponential growth, as you all are, then there is significant instantaneous gratification from accepting these financial offers, but be smart about it, because this is your baby. So do your homework to find the people who fits your values, communication style, working dynamics, appetite for change, flexibility, and collaborative vision.

B. Think a few steps ahead

This builds on the last point. Sure you may need the money now, but they come with Terms and Conditions. What seems like an innocent agreement in the beginning can greatly impact your company’s decisions on future funding sources, how and when to take the company public, processes of decision making, etc. Basically the decisions you make now will have great impact years down the line. Plan for the worst, but plan for the best – when you really make it out there. Think about what control, freedom, and support you’d need at that level, and start from a place of being vision-focused. This may depend on different schools of thought and based upon people’s varying experiences, but many have said that patience, and waiting as long as possible has been helpful. It’s when you are NOT desperate that investors actually come knocking on your door and you have the negotiating power.

And this doesn’t mean to neglect your very current ASAP needs if you need some financial support right now. It’s not about thinking ONLY about the future and neglecting the excitement of being an entrepreneur. It’s just to say that present issues ALWAYS feel pressing, as well they are, but your current actions do impact the future. And it benefits you to think about the future, because if you don’t plan on having a future to think about, then why are you pursuing this venture now anyways? If you want to be successful, then you plan to be successful, visualize being successful, and take steps RIGHT now from that place of inspiration.

And of course you are constantly changing and evolving, so what you plan out right now may change very quickly. But that’s why you have a foundation to deviate from, rather than pure meandering. Thinking ahead is just about finding the variables you do have some control over, recognizing the ones beyond your control, and understanding the difference.

C. Be transparent.

Let’s just lay it all out, what exactly are you looking for? Money, then let’s talk money. If it’s all about the numbers, let’s just say it upfront. Sure some people like to look at the team and invest in talent, but the purpose is still to make money many times the amount of initial investment. So just be very blunt with the expectations from both ends early on. Be honest about what you need too. Do you want expertise and network from your investor, not just the money? So then bit the bullet and don’t only agree to the people offering to write the biggest checks.

But look for people who are asking you questions, and others who don’t even bother. You may feel somewhat grilled by those curious ones, but you should LOVE these people because they take their job seriously and they’ve vetting you thoroughly so if you get their money, you know it’s coming from a very wise, thoughtful, and supportive place. For people who don’t and just hand over money, it’s like… what do you like about me? Are you just rich, altruistic, or do you actually care about what I do and believe in my future. Again, it’s about money, but it’s more than that. And even be totally honest – what are ways that you MAY or WILL fail? What are hardships that you foresee about this venture, what are some market barriers, and what are some limitations? This shows that you’ve really given a 360 assessment, and you’re not just another fresh face starting out in the business world. Investors like some wisdom, and heck yeah if you give them the real deal, and they’re still in, that’s worth so much more.

After answering Why this? Why now? Why Me/Us? answer Why NOT this/now/me/us?

D. Just because you FAIL at your business, does NOT mean that you are a FAILURE in life

I’ve discussed this before, so I will not drone one needlessly. There is something else that I myself often forget, and sometimes do not believe in: Luck.

Oh you may say, luck is for those who have no faith in their work and are just wishing for miracles. Well sure, but if you’re an entrepreneur starting something new and different, don’t you have to have a certain level of overconfidence and optimism? Not to be delusional, but given the odds preferential to failure, the fact that you’re still pursuing it means that you are at an above average level of faith. There are factors that are unforeseeable. Maybe you go to one event, where you happen to talk to one person casually about what you do, and then it was such a great conversation and in the end you realize they manage a HUGE fund. Or maybe you came into market just as another competitor got in before you and your product flailed. It doesn’t mean YOU are a failure. Sometimes it’s just life. This also just helps you when you walk into a room. It’s so much harder when your entire self-worth is on the line. But when it’s just chatting about something you’re totally passionate in, you really WANT sincere honest feedback. So look at it as a project, or a journey in your life. Remember that you have chosen to go off and do your own thing, so you can always go back to the old mundane workforce. If that’s not appealing, then make peace with your decision and carry on with your head held high.

E. It’s about relationships.

We usually think of family, friends, peers, co-workers, mentors, etc. as relationships. Well, generally they should be supportive make us feel BETTER, and not feel as if our livelihoods depended on them. So take intimate relationships for example, for a healthy dynamic, it’s important that both parties feel fulfilled and confident in their own individuality and can manage personal happiness without looking for the other person to fill a void. Because the moment it becomes that you NEED something from someone, then it’s no longer mutual and balanced, because someone has something someone else is lacking. So why be in a relationship? Well, you are good on your own, but with this other person, life is so much more exciting and joyful. Together, the two of you create magic that as individuals, the fire only simmers. It’s the concept of synergy, when the whole is much more than the sum of its parts.

But having an investor is about investing in a relationship. Sure start-ups are looking for quick growth, and always peering at the exit, but you don’t want to just let ANYONE in on your team. Because whatever you’re starting, growing, it means something. Or at least it should, because otherwise is it just a means to an end? If that’s true, that’s OK. But even then. What you’re trying to do is to bring something totally new to market. You’re saying that you have some special qualities, and you’re solving a problem that has not been solved before, or even identified to be a problem. You’re finding the pain point of your customer. So by definition, you stand for something. You are empathetic to the needs of your customer, and your company is creating value and making an impact on the world. So you need to bring people on board who believe in the same things. They need to be just as inspired by and firmly believe in your mission. Or at least to the extent that they are willing to invest a certain amount in.

As most things in life, concepts from industry or part of life can be easily applied to another. So the concept of healthy relationship dynamics also apply to the world of business. So it’s like any other relationships – it’s built on trust, authenticity, and mutual support. If you are an entrepreneur, I know it’s tempting to feel as if you’re under the mercy of someone who holds the key to your near future, but if you truly believe in your product or your general mission without whatever you decide to pursue in life, then know that to go above and beyond, not just financial success but to add tremendous value and impact to this world, you need people on your team who are aligned with your values, goals, and dreams.

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I say the word “audition” as a lighter way of referencing a more high-stakes getting-to-know process,. You are powerful, but be mindful to not get so cocky about it. Stepping away from coming off insecure and needy, is not to be rude and disrespectful. Remember, you are still being evaluated and thoroughly vetted (or I certainly hope so). So treat others like you’d like to be treated. Make this mutually beneficial and worthwhile. The sting of rejection may pierce in the moment, but it’ll hurt so much more down the line, when the ties are deeper, and there is also emotional dependency. So be resolute right now.

But don’t be an asshole. That is NEVER attractive. (Yes I know- it takes a good one to know one).

So what’s the trick?

The trick is that there are no “tricks”, but rather a set of insights, mindsets, and concepts that you can apply to your own ventures. It’s not just ONE thing that causes any ONE consequence, but it’s all worth noting. But there is one thing that will help you out: confidence.

What about confidence?

Some thoughts:

1. Confidence that does not come from result, but is created by doing. You don’t wait for the moment when you are perfectly successful to feel great, because you need that just to get you to that point. The act of taking steps every day, reaching out to your mentors and advisers, and having other supportive people around you will help you be persistent. It’s from the act of doing that you believe you are capable of achieving what you’d thought was not possible, and it’s from dreaming of the Impossible that greatness and innovation flourish.
2. Confidence is not to think that you are perfect and that everything will go exactly as you want. In fact, it’s accepting that despite being so sure that you are doing things “right,” the outcome can be totally unexpected and perhaps you need to pivot or start from scratch. But that’s the process. Have confidence that change is inevitable, but you’ve got this. You did it once, you can do it again. If you’re doing what you believe in, that doesn’t just go away. Being able to acknowledge your strengths and weaknesses is the first step to doing something about it, whether it’s finding team members who complement your skills, or a solid board or advisory committee.
3. Confidence is not waking up everyday feeling like a superhero and with total energy. It’s to have days when you doubt yourself, but you revisit your vision and decide to keep going anyways.

You know how they recommend in interviews that towards the end you have a list of questions for your interviewer to express your interest, engagement, and sincerity? Well, imagine what it’s like to walk into a meeting, say (roughly speaking and I’m paraphrasing), “Hey, super excited to talk, but I just want to make sure that we leave a few minutes towards the end because I have some questions for you as well.” Right off the bat you are adjusting the power dynamic. Even if you end up running out of time, although I recommend that you actually do what you say, it keeps you off the edge during the pitch, so you’re just focused delivering your message and not trying to please someone else.

If you have chosen the life of an entrepreneur, whatever that looks like for you, then you are doing a courageous and  thing – you’ve chosen to follow your passions and take a risk on what you believe in. A lot of people have a hard time putting themselves on the line. Sure you may still be half-in and half-out, but you are RIGHT THERE.

So. What’s you game plan?