The boon that existed at the start of the current startup age has definitely started to wind down. Don’t get me wrong, there are still just as many startups emerging, but investor appetites have definitely waned, with the number of checks being cut dwindling some 50% since mid 2015 – even more this year ‘thanks’ to the Coronavirus pandemic.
This means that startups need to have a really firm understanding of what investors are looking for, and how to sway the vote in their favor. Here’s 5 tips to get them on board with your startup idea and get those funds you so desperately crave.
1. Remember that the first time is always the hardest
The firsts in life are always the hardest, including building out your first startup. When it comes to bagging investors, the first round of every startup you launch will always be the toughest to procure. Investors like to see proof that others are investing in your idea – ie., you’ll get way more offers when you already have one on board with your idea.
Laser focus on your most promising investor candidates first, so you can get the social proof you’re looking for. Guy Kawasaki likens this to rounding up a gaggle of ferocious kitty cats – focusing on a few cats at first, so you’ll at least bag one to get the ball rolling on gathering the entire herd eventually.
2. Research investors in advance to find a common ground
Stalk these illusive creatures on social media, including LinkedIn. Figure out where your common ground might lie such as schools you’ve both attended, the types of movies you both like, countries each of you have traveled to, activities and sports you both enjoy – books, art, food, drink, etc.
Bridging the gap and breeding familiarity with investors will help break the tension for both of you during that initial sitdown, and may well create a lasting personal relationship that will benefit you both indefinitely – regardless if they invest in your current idea or not.
3. Market validation is a must
Sales traction will always be king with investors when it comes to garnering interest in your company. They love seeing lots of dollars coming in, with the only thing standing between the company and limitless profits being the cash infusion they can offer. While ideal, if you’re like most companies – particularly in the tech space – you might need lots of money long before the first sale is made.
In lieu of cash sales, you’ll have to find another way to sway investors to part with their cash. Pre-orders, beta-tester registrations, testimonials from free users, list sign-ups, and anything else that might constitute proof of concept. If you have nothing but a great idea: a highly experienced and respected group of professionals on your team, with supreme confidence in your product might do the trick.
4. Titillate their imagination with irresistible potential
It’s easy to rifle of off study after study related to your business and market from NCBI, Johns Hopkins, Harvard, etc. Investors are used to hearing about qualifying studies in the pitches they hear. In fact, they’ve become somewhat immune to them. Remember that investors are human beings, with the emotions to match.
Say you’re a YouTube celeb in the fitness niche and you’re looking for investors for a revolutionary app that will end obesity worldwide. You want to paint a picture for investors and get their brains churning about your product, and let them calculate and fantasize about the potential themselves. For instance, you could titillate them by breaking down obesity that exists just in the United States alone, which represents roughly only 5% of the world’s population:
- 160 million Americans are overweight, with 75% of that number being men.
- 60% of all women in the country are also overweight or obese (Hint: women make 95% of household buying decisions!)
- Then hit them with the global number of overweight people; approximately 2.1 billion, representing more than a quarter of the world’s population.
5. Repeat the following over and over
“Scarcity converts investors.”
Scarcity forces us to buy sooner and buy more often when a limited opportunity arises. Like Bitcoin a few years ago. As a startup, you want to create such a feeling of scarcity for your product in the market that investors will have no choice but to cut a check or risk losing out on the heavy profit potential you offer.
You have to prove how ground-breaking your brand is and how hungry the market is to receive your offerings. If you can’t prove scarcity, you’ll want to create the illusion of it and see if anyone bites.
Just because funding in Silicon Valley and other startup hubs has slowed doesn’t mean you can’t get the money you need to take your business to the next level. All it means is you’ll have to work a little harder than those who came before you.