In our latest guest post we hear from Phil McSweeney, angel investor and acclaimed author of AngelThink, the founder’s guide to how angels think. With a wealth of experience in the startup world, he pulls no punches as he tackles the age-old question of why so many founders struggle to secure investment.
The brutal reality of the startup world is that most founders can’t raise investment. Why is this? Here’s the simplest answer I can give you – investors would rather invest in something or someone else. I know, I’m an angel. Our problem – we have too much choice and, if you don’t want me to sugar-coat it, you haven’t made the cut.
When you ask investors for the reasons why they might decline your ‘incredible opportunity’ the answers you get are often not a lot of help – ‘I’m not looking for an opportunity at the moment’ (insert reason here)’ or ‘I couldn’t make the story stack up. I was expecting more / less (insert reason here)’. You can probably guess why we might not have the time or inclination to ‘coach’ you to a better presentation.
Let’s leave aside timing, the state of the economy, politics, human quirks and anything else you have no control over and concentrate on what you can control – you and your idea.
From working with hundreds of founders over many years (mentor, coach, adviser, investor) here are five main things that founders don’t always seem to ‘get’, All important. No particular order.
1) You don’t really understand what an investor is looking for in an opportunity
You might think you know – because almost everyone starts a pitch the same way. Here’s a big customer problem and here’s a big solution. It’ll change this in the world. And then you show me a hockey-stick graph of how much revenue it’ll be making to year 5. And we both know it’s a delusion.
What I really want is to be persuaded that you can do it, you are the guy or gal that can pull it off. I want to be confident that you can execute, scale, raise again and again, stay standing, get people to follow you, stay sane, and exit. Let me repeat ‘exit’ – because investment has two parts to it – money going in and more money coming back out. Show me you get that.
2) You haven’t mastered the art of telling a compelling story
To be compelling you have to grip investors emotionally as well as with logic. You have to build the love for you. Investors have to love you – more than any other idea they know about – to invest in you. You have to be skilled at choosing the story, choosing the emotional notes to play, and composing a business narrative. A powerful origin story will really chime with investors (sharing where your passion came from), an engrossing vision (sharing what you are going to change in the world for a target group, tribe, cult, etc.), and an ability to perform. Learn how to hug.
3) You don’t look like a winner
You have to know what is at the heart of your offer that gives you a competitive advantage. What will make you look like the winner of the contest you’re in?
It will always include your authority in the space you’re in, your command of it. It could include many other things too, your IP, insider knowledge, superior team, prior successful exit. It’s so easy to discount people – except the exceptional.
4) You don’t have enough appreciation of why you might fail and how you are going to cover that risk
At the top of most lists of reasons for failing is building a product that not enough people want. You’re gambling with years of your life and you’re asking investors to gamble with hundreds of thousands of pounds. I see some pretty flimsy attempts to evidence a market exists. Wildly inflated market sizing exercises with inadequate evidence. Lack of ownership of a product is not proof of need.
Apathy and inertia are the greatest competitors you’ll face in trying to sell anything. Show me how big an obtainable market is, how you’ll reach these customers (a credible go-to-market strategy) and why they’ll buy.
5) You probably haven’t considered investor psychology
Lastly, you most likely haven’t thought about the tactics you can use, entirely ethically, that positively influence investor’s feelings and decision-making about you. The things that will make them talk themselves into saying ‘YES’.
I’m not talking about ‘in your face’ FOMO or scarcity tactics – investors are not giddy-kneed teenagers. You have to be more subtle. I’m talking about rapport-building, using reciprocity, offering partnership. I’m talking about balancing honesty with ambition. I’m talking about de-risking enough to help them find a balance between loss-aversion and thrill-seeking. I’m talking about being your authentic self and letting investors see what they’re getting. I’m talking about understanding and playing biases – like showing certainty not hope.
For many founders I’m talking about getting beyond the idea and exploring personal growth, the ‘inner work’ you suspect you need to do to look like a leader and make investors choose you. In my experience, most investors make decisions about founders over ideas. More often than not, what helps you raise is usually when you stop talking and let them talk themselves into or out of an investment in you – because they have enough confidence in you. You have to be the reason they say ‘YES’ – you are the prize. Learn how to become it.
Phil McSweeney MA MBA is an angel investor and an acclaimed author. His book
AngelThink, available on Amazon gives business founders and startups a distinct competitive advantage when it comes to raising funds or getting business angels to invest. He distils research and experience, the psychology of influence and the wisdom of greats into 150 gems of insight to give founders the edge in the fundraising contest.
