www.gingkocapital.com - Investors will fund the CEO not the idea.
Light At The End Of The Tunnel: By the time you're finished reading and comprehending this article you will be able to write a one page almost fill in the blank proposal that has a very good chance of landing you some funds. Straight from the investors mouth, one page is all investors want, its all you need. If you can't describe your startup in one page then you won't get anyones attention with the proposal.
Presented by investors from the Phoenix valley, the session had an audience of about 20 people. I'm transcribing this directly from my notes so hopefully you'll get a taste for how the 2 hour crash course flowed. Keep in mind the goal of the presenter was to ensure anyone applying for the December Invest Southwest event wouldn't be wasting the panels time. The panel consists of dozens of accredited investors who've been doing this for years.
Investors will fund the CEO not the idea.
Investors will fund the CEO not the idea.
Investors will fund the CEO not the idea.
Thats not a typo. That was repeated every three minutes and it makes sense. Investors want to make money not save the world (its good if the two overlap but not necessary). Making money is not about the idea but the ability to execute on it. Give a bad idea to a good CEO and money will be made, give a good idea to a bad CEO and you wont get a return. Convince the investor you can make money first and foremost, everything you do ties back to that. Keep that in mind when writing the proposal, draw a tree diagram connecting everything back to that idea if you have to. From now on its not the idea its you, you are either investable or not.
Key Reasons You Are Not Investable
- Market is too small. It needs to be in the billions and you should project only a small share, not the other may around.
- Your only claim is game changing technology. Changing the game carries alot of risk, back it up, dig deeper for a valid competitive advantage.
- Not in a growth industry. Your market better be gaining momentum not loosing it or stagnating. Either you're too late or you defined your market incorrectly.
- Real revenue vs. projections. A product thats making money today is less risk than one that may make money tomorrow. Trust me you can boot strap until your first sale, user, whatever. Prove to the investors you've got a market, don't just project how you could have one.
- Don't take on the big boys. If your technology directly competes with Microsoft or Google they will squash you by throwing money at the problem. Not a good investment.
- Investors like barriers to entry. Make sure you have some secret sauce, make it clear why no one else can do this as easily as you can. First out of the gate is not a barrier to entry, someone else can always throw more money at the problem. FaceBook and MySpace didn't win cause they were first by the way, they won because they had great marketing and media. IP is also good, but not everything.
- Know your suppliers. Hardware or software, know who you have to rely on to reach success. Have a plan in mind as to risk and how to mitigate dependence on others. Investors don't like an outsourced company.
Every single point above ties back to being a good CEO. None of the issues there are technical. Investors want to see and feel that the founders will be able to tackle any issue on that list at any stage in the startups growth.
Key Reasons You Will Get Investment
- Investors want momentum. The market, your user base, and media interest better be shooting through the roof. Make it happen, Invest Southwest can help you there.
- Looking for great management team. Again its not your idea but your ability to convince the investor you (or your team) can take it all the way.
- Have sales traction. I know WTF? How am I supposed to have sales if I'm looking for investors? You have two options, be on a first name basis with an investor or show him sales. You're the CEO, pick the easiest path. Investors will call your customers so do NOT fake it.
- Figure out how to sell it. Having an idea and making money from it are two different things. Thats where being both an inventor and a CEO are important to the investor.
- Has to be proprietary. Dig deep find something that makes you unique. Pinpoint it polish it and give reasons why you will own it.
- Recruit industry leaders as advisors. Having a big name attached to your startup goes a long way. Find these people, LinkedIn, Starbucks, your high school friend of a friend. Start attending local meetings related to your startup, whatever. No excuses this takes time and patience and many dead ends. If you cannot do this you're not going to succeed as a CEO, end game.
- Reasonable sales cycles. Your financial projections better be realistic. Whats realistic? In a nutshell, negative year one (with money invested by you, friends, and family), positive by year four, and $50 million plus at year 5. Don't fake the numbers, be in the ball park and you've got an investable idea. If you can't hit those numbers it means your idea can still be profitable but investment is not in your future.
- Be on the same page upon exit. Your investor doesn't want to sponsor you're life long project. Understand and plan for an exit, make that clear up front.
- Understand your strengths and weaknesses well. As a CEO this is a given. Investors want to know you will make the best decisions possible regarding their money. Being honest with yourself about what you can and cannot do is key. Don't try to make yourself look good, investors are happy to let you grow your team to fill in those weak areas.
Startups With An Advantage
You are always competing with others for investment dollars. Its better to have an edge, and three simple things give you an unquestionable advantage…
- Revenue
- Customers
- Velocity
The Proposal
If you think you've got everything above down then write the proposal. Do NOT pretend you have it all down, you're only fooling yourself. Those are the reasons only a handful of companies get funded. Those are the reasons companies with bad ideas get funded. Those are the reasons you may or may not get funded. Its a checklist, its been boiled down, don't guess, just go through the lists and make sure you can check each of them off. You are NOT too busy and working on the product is not more important if you are looking for funding.
Sigh… So this post will be ridiculously long if I add the proposal template here. Instead I will link it purely to keep things nice and organized. A template for a proposal encompassing all of the ideas above is as described and shown at An Investable Proposal One Page Template. Its almost fill in the blank with ideas an key concepts listed in each section.
