Starting a company is complex. Having a good idea and a business plan aren’t enough to guarantee success. You also need the capital to start and grow the venture. Unless you have a fortune and can self-fund your business, you will need to court investors for this capital.
Pitching to investors can be challenging, especially if you are coming to industry from the world of academia. Stakeholders in industry have very different priorities than those at universities. How can you ensure effective communication with potential investors that not only secures funding, but also establishes rapport with them for future endeavors?
Here is what to do—and what not to do—when courting investors.
Articulate your vision and story
Articulation, whether through speaking or writing, is powerful. When you translate thought into expression, you are not merely conveying an idea—you are contending with it. You will see its gaps and contradictions in greater resolution and can then address them. This iterative thinking process is essential to building a cohesive, achievable vision for your business endeavor. Kyle Wiechart, an Ohio-based serial entrepreneur and angel investor, says that entrepreneurs who have successfully solicited investments from him “have been able to clearly and concisely present what the real-world problem is, and how their product or service could solve that problem.” Before you start taking steps to launch your business, take time to think and write about this question:
How will your business solve a real-world problem?
This question is the compass by which you map your company’s future. It is easy to get wrapped up in the glimmer of a new idea and neglect practical application. To grow a business successfully, it is not enough to have a novel method or technology with potential use cases. You need practical application and a plan for manifesting it. This is achieved by articulating your vision.
He who speaks first, loses.
While defining your future is vital, it is also important to tell your story.
“When you sell a company, you have to be able to sell the story. The story is huge,” says Wiechart. A good story will show that you are self-aware and are able to accurately contextualize your business within the market. If your business has already seen some success, you can also use the story to illustrate that you know why you are successful and can continue to replicate that success. “You didn’t just fall into it, and you have no idea why you’re successful,” says Wiechart. “If you have no idea how you’re successful, who’s going to buy you? …You can’t sustain that.”
Humility is foundational to success. Without it, one cannot learn and grow. A core aspect of humility is acknowledging your blind spots. It does not matter that you know every aspect of your technology or that you have advanced degrees. Unless you already have entrepreneurial experience, it is essential that you (1) be transparent about your lack of experience, and (2) bring a diverse group of consultants on board. Being open about your lack of entrepreneurial experience will communicate self-awareness and proper priorities. You are not concerned about impressing anyone and you hold no illusions about your limitations. Investors will appreciate this display of humility.
Wiechart recommends bringing on consultants for every major part of the business and investment deal that you don’t have experience with. This could include a start-up specialist who helps you navigate the treacherous early days of the business or a legal advisor who can guide you in negotiating exit strategies. Diversity of ability is invaluable to growing your business.
Flexibility is another aspect of humility and is essential to growing a business. You are bound to make mistakes throughout your journey, so having the grace to recognize them and pivot accordingly will speak volumes to investors.
Capitalize on FOMO
FOMO: Fear of Missing Out. Many investors suffer from it. “FOMO is a big deal,” Wiechart says, because people don’t want to miss out on the next big thing. “So, it’s either ‘Wow, [I will] make so much money investing,’ or the fear of missing out on a possible great investment.”
Wiechart also explained that the investment group he was part of only invested in some companies because they knew other investment groups were interested. “We wanted to know that they [another investment group] saw something [in the company] that they liked.”
For these reasons, it’s in your best interest to get as many people interested in your company as possible. Once you have some investors or investment groups interested, you can use that as leverage to persuade more investors and select the best deal.
Passive listening is all too common a mistake. Merely waiting for someone else to finish what they are saying so it’s your turn to talk again is not conducive to effective communication. Proper communication requires effort, empathy, and asking questions. Furthermore, other people can tell when you aren’t truly listening, which reflects poorly on you. As such, practicing active listening when talking to investors is vital.
What does active listening look like?
A major component of active listening is addressing questions clearly and concisely. Don’t skim over them to get to what you were already planning to say. Acknowledge the speaker’s concerns and then address the question head-on. Additionally, you should listen for the “question under the question.” Many people ask questions tangentially related to the one they truly want to ask, usually because they do not want to appear too forward. So, when an investor asks you a question, take a moment to think about their question. What is it that they’re really getting at? When you respond, try to answer that unspoken question as well.
When you translate thought into expression, you are not merely conveying an idea—you are contending with it.
Another aspect of active listening is clarification. If you do not understand what the speaker means, do not assume their meaning. Ask for clarification. Once they’ve clarified, repeat it back to them in your own words to confirm that you have the correct understanding.
Have skin in the game
If you want to start a business, have skin in the game. Invest your own money, time, and effort. Not only will this boost your motivation to see it through, it will also signal to potential investors that you are serious about it. After all, if you’re not willing to put your own cash on the line, why would anyone else?
Focus too much on the technical details
As a research professional, you may be naturally inclined to focus on the technical details of your company’s core product offering and what makes it so innovative. However, investors will care more about the application and ramifications of your product. As stated before, connect with the investors’ priorities by explaining how your innovative solution will solve a real-world problem and how you will scale it to generate revenue and profit.
Investors aren’t interested in conjecture. “Assumptions are the death of the company because you assume based upon what you know—but you don’t know what you don’t know,” remarks Wiechart. Don’t engage with assumptions or hypotheticals unless posed by the investor. Assumptions may communicate a lack of consideration for other variables and outcomes, which makes you look ill-prepared. Furthermore, should you secure an investment, don’t use the funds to chase an idea based on assumption. If the assumption turns out to be false and money is wasted, the investor who supplied the funds may lose confidence in your judgment.
“He who speaks first, loses.” According to Wiechart, that is a fundamental rule of negotiation. By speaking first, you define the limits of the deal and set a ceiling. Rest assured, you will not receive your ceiling, much less anything above it. Always let the other party speak first in negotiations.
Skip the fine print
Not all investors are trustworthy. Many effective con artists are smart businesspeople who know how to play the game. Always have a good legal team that can translate legalese and sniff out inconsistencies.
Securing funding is your primary goal when courting investors. By communicating effectively, you can project the right impression and build rapport with them, which may be very helpful down the road.