You might be doing the wrong things.
By: Andy Kieffer
(This article first appeared in Spanish on EasyLex’s blog.)
You have a startup that you’re trying to get funded, but you aren’t having any luck. You’re frustrated. Your idea is brilliant, your pitch deck is tight, you’re getting the meetings but then nothing happens. Investors are polite. They tell you that they’ll give it some thought or they come up with some lame excuse. Nothing is sticking.
Then, you hear of a startup that’s received several term-sheets for an idea that seems boring – one that’s already been tried several times over. What’s the deal here? Why does it seem so arbitrary? Why not me? What do investors need to hear? What am I doing wrong? I know your pain. It’s frustrating and confusing but, beyond what seems like randomness, there is a logic.
Here comes some tough love. The vast majority of funding has nothing to do with the quality of your idea, your pitch deck, or you. Almost ALL successful seed rounds happen because of connections or previous history. Did you use to run a product team at Google? Did you have a previous startup that made money for investors? Are you related to someone famous? Are you somehow connected to a rich investor? If so, congratulations! You’re all set. This article is not for you. For the rest of us poor souls, the odds are not in our favor. However, there are some things you can do to maximize your chances of investment.
I’m going to use one of our recent investments as an example: EasyLex. EasyLex is a platform that makes it easy, fast, and safe to do all of the legal documents you need to create your startup. When the co-founders first walked through my door they were facing difficult odds. They were working attorneys just out of college with no startup experience and no connections.
Here is how they overcame those odds and got funded.
- Reduce the risk. Here in Mexico, the startup world is ramping up. There have been few cases where startup investments here have returned serious money. Investors aren’t being stingy, they’re being logical. Rather than focus on your shoot-for-the-stars strategy, your goal should be to make an investment look as safe as possible. In Silicon Valley, you’re encouraged to think big. In Mexico, think safe. Here’s how EasyLex did that.
- Show that money is already being spent. The co-founders came in with market numbers. They were able to quantify how much money is currently spent to solve the problem they are targeting – and it’s plenty. So they aren’t going to need to convince folks to do something new, which is very hard to do in Mexico. Instead, they are shifting what the market is already doing to something cheaper and easier, and thus less risky.
- Stay focused on a specific need for a specific target customer. Obviously, a platform that can automate a complex legal process can go anywhere. They could have pitched this as a global, fix-all solution for every legal problem under the sun. They were smart in focusing on the initial formation and investment documents that a startup needs. The market was perfect because 1) startups like to try new things 2) it’s a market that’s growing quickly 3) it’s inherently viral 4) it’s easy to target customers (through meetups, conferences, incubators, and other places where startups congregate). I could see that this had longer-term, big market potential. But by showing me a targeted and pragmatic solution to an obvious problem, they removed more of the risk.
- Get your target customer to tell the story for you. Of course, YOU believe in the opportunity – you’re selling it to me. A better way to tell the story is to go out and talk to your potential customer. Explain what you’re doing and get them to go on record confirming that what you’re offering addresses a real and imminent pain. Get quotes. Offer to connect your investor to them to discuss. Your investor needs to know that this is not merely your opinion but is a verified market reality.
- Build your advisory team. So you aren’t connected to recognized industry experts – time to fix that. Contact them. Don’t be afraid to aim high. Many of those key executives you think are untouchable are bored. They would welcome a conversation with someone from the startup world. Ask if they would be willing to be an advisor. For a few hours a month of their guidance, you can offer ½ percent of your startup (on a cancelable multi-year vesting schedule). EasyLex was able to show some top-tier attorneys who were willing to act as advisors to their company. That made it feel a lot more “real” for me.
- Focus on the momentum. You’ve done something. Maybe it’s not a product yet but you’re building a mailing list. Or you’ve been blogging and you’re tracking your Google rank. Whatever it is – show it. Show your investor how you plan on running the business by setting, measuring, and communicating specific goals. Build a dashboard with clearly defined metrics, such as website visits, bounce rate, email opens, etcetera. EasyLex came in with a proposed income statement showing unit economics, unit projections, and costs that tracked out to 24 months. They knew, and I knew, and they knew that I knew, that it was a guess. But it showed me how they were likely to run the business – that they knew what they were doing. They took that risk off the table.
- And finally, PLEASE stop handing all your power over to the investor. When you talk about your company, explain it as something that’s happening, rather than something that could happen if only they would invest. This is some subtle psychological jujitsu that most entrepreneurs fail. The fact that you are waiting for me, the investor, to decide if your company has a future is terrifying. Nobody wants to be the first person at a party. You are the expert on your company. You KNOW that there is an opportunity and you are working to capitalize on it. The train has left the station, dear investor, either get on or get out of the way because we are already in motion.