It’s a Match! Investor-Founder Partnerships

YOU have a great business idea, tonnes of tenacity, and bucketloads of talent. THEY have an open mind, an eye for opportunity, and pocket loads of money. Could it be the perfect partnership to transform your ideas into a lucrative empire? You may be surprised to learn much of that comes down to your ability to tell your story. Storytelling is a powerful tool for entrepreneurs looking to raise a seed or venture round.

Startup companies need to purchase equipment, rent offices, and hire staff. More importantly, they need to grow. In almost every case they need outside capital to do these things. Without investor funding, the vast majority of startups will die. The amount of money needed to grow a startup to profitability is usually well beyond the ability of founders and their family to finance. Startup companies are built to grow fast. High growth companies almost always need to invest capital to sustain their growth prior to achieving profitability. A few startup companies do successfully bootstrap (self-fund) themselves, but overall, they tend to be the exception.

Cash not only allows startups to thrive and grow, a war chest is also a competitive advantage in all the ways that matter: hiring key staff, public relations, marketing, and sales. The good news is that there are plenty of investors looking to give money to the right startup. The bad news is that raising funding is brutal. The process is often time-consuming, arduous, complex, and ego-deflating. Connecting with the right investors can mean success or failure for your business venture. Here’s the thing: they’re looking for more than just a great app to fund, or an interesting business idea to get behind. They want to make sure the founder they’re investing in is worth their time, energy, and money.

Humans are hardwired to love a great story. Stories inspire us. Stories are retold. We remember stories. As the late Maya Angelou said: “People will forget what you did, but people will never forget how you made them feel.” The same is true with potential investors. They may forget what your company does or the specifics of your business model, but they will remember how they felt when they heard your company’s story. Investors write cheques when the idea they hear is compelling when they are confident that the founders can realise its vision, and that the opportunity is real and sufficiently scalable.

“Carve your name on hearts, not tombstones.

A legacy is etched into the minds of others and the stories they share about you.”

― Shannon Alder

3 Key Elements to Your Investor Story

The world’s greatest business idea – a guaranteed profit generator that could influence the future of society as we know it – can still fail to launch if it isn’t explained in the right way to investors. Don’t assume that the wonder and awe of your company’s potential will seem obvious when presented through death by PowerPoint. From the investors’ perspective, if the presentation is a snoozefest, then it’s likely the business opportunity is as well. A good story needs to inform, involve, and inspire for people to invest.

Inform Them

Let’s face it, you are going to get this part right. This is the plot of your story! One sales technique we have learned over the years is that people like ideas they think they came up with themselves. In other words, don’t simply give your investor the number five. Give them two plus three and then help them realise the answer is five.

Involve Them

Make your story personal to the investor. Hot tip: this usually involves listening. Remember Sales 1:01 – do not spend all your time talking. We all want to be listened to; better yet, we want to be heard. When you listen to people, they tend to listen back. Listening gives you great insight into their concerns and provides you with an opportunity to overcome them. Use what you learn about the investor to make your story specific to them.

Inspire Them

Okay we are going to be honest here, this is the hardest part. You need to make the investor care – and remember: no one cares about your dream as much as you do. Most rookies tend to leap straight into what we were going to build, how much it’s going to cost, how we were going to sell it for, and the business terms of the partnership agreement. All of these things are important, but if you haven’t made the investor care, all else is moot. Inspiration is the emotional aftertaste. It’s about finding the essence of how your idea will change lives, and then giving the investor the confidence that you are the person to lead that change.

There’s an old adage: “If you want money, ask for advice. If you want advice, ask for money.” Be careful not to ask for the sale (fundraising) before fully explaining your value (business). Investors need time to digest your business plan and strategy. Just as you wouldn’t expect someone to fall in love with you on the first date, you can’t expect an investor to fall in love with you and your business in just one meeting. It takes time to build a relationship. Trust is earned over that time. By establishing a firm foundation in your relationship – one that’s built on advice and feedback rather than financial requests – you’re showing respect for the investor and conveying that you seek their skills or expertise, and not just a cheque.

“In economy, cash is king. But it will be a great king if it is in the hands

of people who can change the world.”

― Marionito Marquez

8 Key Questions to See if You Are Investable

So you have a great story and someone to tell it to who can help you. What are your chances of actually closing the deal and landing funding for your startup? Your startup is far more likely to be investable if you can answer “Yes!” to the following questions:

1. Are you operating in a billion dollar market?

Millions are chump change burned up on private jet fuel and extravagant lunches during investor meetings. If you are only thinking in millions, then what you have is a small business which may one day qualify for a small bank loan. This is probably not something that venture capitalists are going to be excited about. Consider the current valuations of successful startups that are getting funded. WeWork is valued at almost $60 billion. Uber is shooting for a $120 billion in their initial public offering (despite the fact that it is still losing almost $2 billion per year). Being able to show how big your market is and how it is growing over time is critical for your investor to determine their potential returns.

2. Can you demonstrate consistent growth in your North Star Metric?

Consistent linear growth on all fronts is a pipedream. However, if you can show consistent traction and growth in your key metrics, this demonstrates that you are focussed on the right things and that those things are trending in the right direction.

3. Do you have the right team for the job?

Let’s be honest: ideas are a dime a dozen (at least from your investor’s point of view) and very few are unique. What investors truly care about is that you have the best team to execute the strategy. An A-team with a growth mindset can turn a mediocre idea into a massive win for an investor’s portfolio. In the same token, a weak team or a toxic culture can completely sabotage a genius idea. Be smart and humble enough to surround yourself with top talent and winning mindsets for the sake of your business.

4. Are you willing to starve to death to make this happen?

Two-Minute Noodles may be a little cliché. However, living on protein bars and shakes for a while probably isn’t uncommon today. The point here is dedication. Investors are not there to fund your liquid lunches or lavish lifestyle. They are putting money into the business. A great portion of their life savings, years of hard work and sacrifice, and disciplined financial decisions have brought them the financial success they have today. They cannot afford for you to throw in the towel when the going gets tough. They are looking for entrepreneurs who are so passionate and have so much grit that they will not give up, even if they have to go hungry. Once you make it work there will be plenty of expensive dinners in your future.

5. Are you willing to sleep in the office until you make a profit?

Rent is a killer for startup founders. David Klein from CommonBond slept in his office for years before landing $4 billion in funding. Microsoft, Dell, Google, Amazon, Apple and HP all started in their garages. Grind now, shine later.

6. Do you have a track record of winning?

Passion is good, as is being in a sector with great potential. But can you prove that you can do what you say? Investors must be able to believe in you. A strong resume demonstrating your ability to overcome challenges is a good start. What’s even better is providing updates that show you are crossing off important milestones and can deliver on your goals.

7. Are you profitable?

Some of the biggest and best-funded startups are clearly not profitable – at least not in the traditional sense. While scale is important, some of these stories can be misleading. Especially as the economy is changing. Over-valuations and the big risk-taking we have seen over the last decade cannot be counted on through every phase of the cycle. If you are profitable, then you have a business that investors will be interested in. Profitability also gives you more options and much more negotiating power. It means you can look your investor in the eye and say “I don’t need you, but if you would like to get on board, we can make this happen faster”.

8. Do you have a scalable business model?

It is likely that you may have to do things that don’t scale in the beginning in order to get the clientele and funding. However, significant funding is really reserved for financing the scaling and expansion of businesses that already have a polished model. The financial injection is the juice to replicate and accelerate.

“If you are working yourself to death, how can any investor feel safe,

confident and secure investing in you?”

― Loren Weisman

5 Mistakes to Avoid When Meeting Investors

Unfortunately, when meeting investors, it’s normal to get nervous and make mistakes. These mistakes could potentially cost you the opportunity of a lifetime. No pressure!

1. Do Not Paint the Perfect Picture

While you might assume that investors want to hear the dream scenario, that isn’t the case. Investors are seasoned business people who understand risk. When you paint a rosy image, making it seem like your company is yet to meet any setbacks, you make it seem like you do not share their appreciation that risk is an element of your business. When you only portray illustrations of record-setting growth rates, you begin to sound delusional. No one takes that approach seriously. Instead, focus on giving realistic outcomes, scenarios, and strategies for overcoming adversity.  

For example, Uber’s now-legendary 2008 pitch included a slide of likely outcomes, ranging from best to very worst-case scenarios, and explanations behind why they thought the realistic one was the most likely. Even the worst-case scenario was still demonstrated to be a win for potential investors. Investors want to be sure you are prepared for whatever adversity comes your way. They are much more likely to be impressed by an analytic outlook, resilience and good judgement than blind optimism.

2. Don’t Waste a Sure Bet

If you are lucky enough to have an ideal investor in mind, one you think is a sure bet to support you, do not go to them first. Instead, pitch investors who are less of a sure thing so you can practice. Even extremely successful founders have a hard time securing capital. Robbie Allen, founder of Automated Insights, is “successful” by anyone’s standards. He raised over $10.8 million, but was rejected 173 times on his partnership journey.

3. Don’t Forget to Dress for Success

Silicon Valley, particularly startups, have a reputation for thriving on casualwear. It’s easy to forget that you will be judged on your appearance, and that first impressions matter – a lot! Research conducted by Princeton University in 2019 shows that people judge your competence based on how rich your outfit looks. The same face, when seen with ‘richer’ clothes was judged significantly more competent than with ‘poorer’ clothes. No one wants to invest in someone who doesn’t take care of themselves. It’s a reflection of how well they take care of other things.

4. Don’t Forget Proof of Concept

Early traction, potential customers and media buzz can all help make the case that your business is starting to click – not just in your mind, but in reality, too. Don’t fall into the trap of believing that investors will be happy to fund a really great idea. Almost anyone can come up with a creative concept. The more work you do to prove your concept has legs upfront, the more likely your YES will be.

5. Don’t Lose Due to Poor Communication

It should go without saying: never break an agreement, verbal or written. That kind of behaviour could end your career. Never fabricate financial information of any kind. That kind of behaviour could land you in jail. Do not try to negotiate in real-time or play investors off each other – you are not a fundraising ninja. Once someone says yes, don’t delay. Get the documents signed and the money in the bank as soon as possible. The hardest thing for an entrepreneur is understanding when they are being turned down and being okay with it. If the milkshake is empty, stop making that horrible sucking sound with the straw. Do make sure you are prompt and honest in all communication, and do not take a “No” personally.

“When you sell in desperation, you always sell cheap.”
― Peter Lynch

Investors Pick Winners, Founders Should Too

Partnership, by definition, means equal exchange – equal reciprocity. You will be working with your investors, so you will need to put your best interview skills to work and grill them to see if they are worthy. It’s a serious decision when you hire someone. And a partnership is 100x more serious than that. There are just as many bad investors out there as bad startups, so you need to be vigilant and use your utmost discernment. This will also give you leverage.

Investors may say they need you more than you need them. But we all know this is hogwash. Startups greatly outnumber investors. Simple supply and demand means that investors have much more choice. As a founder, you do not, so you need to give yourself choice. Your decision to work with an investor is 100x as important as their decision is to work with you. You will pick 1–2 major investors maybe 2–3 times in total. They will invest in 10–20 teams per year, every year, for ten years. Every meeting you have with an investor must, first and formost help you figure out if they are right for you. Focus on what you need for your company and then see if there’s a fit. If you have any doubts, move on. If they are professional, they’ll see that you are focused on what truly matters: hiring only the best, investors included.

“To live a bigger life, you need to learn how to be a bigger human being.”
― Matt Faircloth

Conscious Capitalism

Conscious Capitalism incorporates the principles of higher purpose (beyond profit maximisation), stakeholder interdependence (rather than shareholder centricity), conscious leadership (instead of command-and-control hierarchy), and conscious culture (in place of bottom-line obsession). This way of doing business goes beyond the ideas of philanthropic virtue because it creates an entirely new structure for businesses whose financial integrity rests upon the following:

  • the thought processes inherent in purpose-driven leaders;
  • creating multi-faceted value for all stakeholders;
  • conscious leadership through mentoring;
  • motivating and developing people rather than ‘carrot-and-stick’ management;
  • aligning leadership style with organisational purpose; and
  • creating a culture of trust, authenticity, caring, transparency, integrity, learning, innovation, and empowerment.

There is substantial evidence that business performance is strongly influenced by proper risk management. In addition, sound decision-making is considered central to achieving and maintaining adequate profits and sustaining all stakeholders. While there are a number of brain regions that work together to assess and manage risks, multiple studies show that accurately assessing financial risks requires adequate functioning of the prefrontal cortex. In fact, when the prefrontal cortex is damaged, research shows that people tend to make irrational financial decisions. It is evident that anything which adversely impacts prefrontal cortex functioning affects both financial risk-management and the overall quality of managerial decision-making. This, in turn, affects overall business performance and directly impacts the bottom line.

“The alluring, long-shot chance of a huge gain is the grease

that lubricates the machine of innovation.”

― Jason Zweig

Skin in the Game

People are awakening to the fact that there are enough resources, money and abundance in the world to take care of everyone – if we make it a priority. Gone are the days of non-profit executives jetting off to lavish events. Instead of extremes, we can take care of each other on a spectrum of human experience. In this way, collaboration demands we all have skin in the game – a give and take from everyone involved. As all types of stakeholders continue to question their old patterns and investigate systems for new ways of living, businesses are compelled to follow suit because it simply makes sense.

According to the Yerkes-Dodson law, complex mental tasks have an inverted U-shaped relationship with anxiety. That is, higher arousal or anxiety improve performance only up to a point, but after the peak effect, more stress leads to worse performance. Numerous studies have demonstrated that fear and anxiety activate the brain’s emotional processor, the amygdala. Remarkably, this fear does not have to be conscious for it to activate. In fact, unconscious fear appears to activate the amygdala even more powerfully than conscious fear. In the work environment, this means that a leader who rule with an iron fist, a manager who uses intimidation, and a corporate culture that is infused with threat and punishment all activate the amygdala, regardless of how much an employee pushes this out of their conscious awareness.

“When you’re surrounded by people who share a passionate commitment around a common purpose, anything is possible.”

– Howard Schultz

Brain in the Game

Studies have shown that excessive amygdala activation disrupts prefrontal pathways, thereby impacting economic decision-making. A high level of trust, on the other hand, decreases amygdala activation, offsetting the adverse impact of fear on decision-making and risk assessment. When a corporate culture is trust-based, it makes things easier on the amygdala, especially during stressful economic times. High-trust organisations have been shown to outperform low-trust organisations by 286% in total return to investors. 

From a brain science perspective, it is important to understand how optimism contributes to the practice of Conscious Capitalism. Productivity depends on having the brain resources that you need available when you need them. These resources include a healthy and functioning frontal lobe of the brain. When negativity and pessimism prevails, the brain is preoccupied with looking for threats. Under these conditions, several threat-related brain activations in different brain regions disrupt the action brain, which is responsible for carrying out plans. Rather than paying attention to solving the problems at hand, the brain goes on the defensive, looking to protect us from threats. This disrupts attention in the prefrontal cortex as well, and the brain is less able to inhibit distracting influences.

“The real goal of what we’re doing is to have a positive impact on the world.”

– Ed Catmull

Positivity Pays

When times are difficult in business, people tend to feel “down” and depressed. In this state, they are likely to misinterpret neutral events because their brains activate as if the neutral events are negative. When people are optimistic, rather than being disruptive, the ACC (anterior cingulate cortex) that connects to the amygdala, motivates positive action toward a desired outcome. When you tell your brain that something is not possible, it does not even try to do it. However, when you tell it that something is possible, it stays online.  When companies are looking to achieve sustained profits and growth, they need their employees to be highly engaged so they can execute strategies as efficiently and effectively as possible. Investors are increasingly looking for founders with deep mastery of Conscious Capitalism. Brain science is a useful way to re-package information and enhance our understanding of these important principles.

The world is calling for more conscious businesses, and we are redefining “success.” Now is the time to take the long view and reaffirm your purpose, along with your commitment to greater social impact through conscious business. Investors are on board and want to make a positive difference. It’s important to stay out of your head because you’ll create a reasonable life with your mind, but you’ll create an incredibly sensational life if you also harness the power of your positive emotions and intuition. Get rid of your backup plans for your life and allow it to unfold through you. Watch what shows up.

“We have to bring this world back to sanity and put the greater good ahead of self-interest.”

– Paul Polman

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