No good investment is ever made without a relationship already in place. No good relationship ever starts out by asking someone for money.
This is the ultimate paradox for first-time entrepreneurs seeking investor funding for their startups. It seems like a Catch-22, but that’s only when you buy into the myth that the proper way to raise money is to spam as many investors as possible and snatch one YES out of the hundreds of NOs.
Doesn’t work that way.
In the last two weeks, I’ve written pieces about why startups don’t get funded and also how startups build their networks. One of the many questions I received was this brilliant one from Christian Cox, an entrepreneur who asked:
In what non-salesy, non-awkward way can you genuinely develop all these relationships over time? How do you communicate: “Hey I know you have money, but I’m not asking yet….but also, please know I exist”?
I hear you. If you want to land investment in your startup, you have to build a proper runway.
First, Check the Mirror
The runway to investment is not short. It takes time to evolve an idea into something investable, then more time to be able to properly communicate that investability, then even more time to build the trust necessary to open checkbooks.
The investor/founder relationship is definitely like a marriage, some more so than others. But no matter how convinced you are that the person you’ve just met is that special someone, you’d never start a conversation with “OH MY GOD I LOVE YOU MARRY ME!”
So let’s begin by going back a few steps. To continue the dating metaphor, before we go out to the club scene or the gym or the church picnic, we always take at least one good long look in the mirror.
Is investment right for me?
Maybe. Some startups just aren’t built for it, and are better off going straight for customer revenue to build their business.
Am I ready for investment?
Probably not. There’s another seemingly Catch-22 scenario in startup that the startups that are most investable usually don’t need investment. I know. Startup is full of this chicken-and-egg shit.
What are the major flaws keeping me from raising money?
I don’t know, I just met you. But you know who can answer that question better than anyone else?Investors.
If You Want Money…
My friend Ricky Spero is the co-founder and CEO of Redbud Labs, and has raised money for more than one startup. He also has an uncanny way of simplifying this stuff:
“When I first started, someone told me, ‘If you want advice, ask for money. If you want money, ask for advice.’”
Let’s take the last part first. When we ask for money, we’re going to get all kinds of reasons why we’re not going to get that money. This is sometimes good advice, answers to the questions we were just asking ourselves in the mirror.
But if we kick off the relationship by asking for advice, the answers we get back will be more targeted and less “get off my back, kid.” Either way, we’re going to get a list of hoops to jump through, and when we jump through those hoops, there will be more hoops.
“For real investor targets, I just keep asking for advice, and closing the loop to tell them what I did with their advice, until it’s time to close.”
This is how relationships are built. Requests for advice are usually welcomed, even if they can’t all be met. Requests for money are never welcomed. Except maybe by loan sharks.
The Investor Email
That loop of advice-response-advice can be one-to-one, you to a single investor, or it can be one-to-many, in the form of your investor email.
Example: I distribute a weekly email for these posts, in which I list out what I wrote for the week, what I’ll be writing the following week, and for each idea I’m working on, I ask at least one direct question of my recipients and beg them to reply back with their suggestions.
I didn’t mean for that email to turn into something like an investor email, it just did. It’s become an essential tool to help me write better posts, reach a broader audience, and also build some valuable relationships along the way.
Your monthly investor email should list your accomplishments, with revenue numbers where possible, your pipeline of customer prospects and product features, any feedback you’ve gotten, and then make sure you request a reply.
When the timing is right, relationships will spring out of this email. But at the very least, now you’ve got a monthly shot to put your startup’s best light in the hands of a growing number of investors, advisors, partners, and other important connections.
The Two Way Street
No good relationship is one-sided, the best relationships are of mutual benefit to both parties. Remember that investors are just as interested in deal flow as you are in funding. They get a lot of inbound crap. Be not crap.
Trust comes from understanding, and the more you understand the investor’s thesis and strategy and execution, the better position you’ll be in to build trust.
So how do you understand their thesis and strategy and execution? You ask them. Most investors put their thesis on their website, they all have a portfolio of previous and current investments, and some of them even blog.
Read this stuff. Digest it. Anticipate those areas where your startup might not be a fit and start by asking questions about how to fill those gaps.
In this way, you’re kinda asking them to pitch to you. But you’re also building a relationship. You’re showing you have interest in the other person, you’re a listener, and you’re not just about your own needs. You’re looking for fit, not a one-transaction-stand, so to speak.
Investors Are Human
Speaking of human, a huge communication mistake I see get made way too often is when the entrepreneur treats the investor like a corporation or a bank. Yes, there are a lot of blue oxford shirts and khaki pants. Yes, they crunch a lot of numbers. Yes, the can exude ivory tower sometimes.
I’m going to get a lot of blowback for that, but…
At the end of the day, trust is a strictly human trait, and these investors, these people, are going to measure trust with their gut. Ask the best investors what their number one secret to success is and, with all honesty, they’ll point not to their algorithms or due diligence process, they’ll tell you about their judgment and their timing. A few of them will talk about luck, but luck is just judgment and timing.
Ask those same investors what their number one factor in their investment decision-making criteria is, and they’ll point not to the greatness of the idea or the opportunity in shifting market factors, they’ll tell you they value the strength of the team more than any one single thing.
These are humans talking about the humanity of humans. People putting trust in people. So to make a long story short, ask them about who they are. Build a relationship that doesn’t have anything to do with money.
Get on the good side of their judgment, and wait for the timing to be right.