We have all done it. It’s easy to get blinded by the cleverness of your start-up or scale-up, because it’s yours: your baby, the project that you’ve poured your life and soul into.
When you have dedicated everything to a business, it’s much more difficult to sense when something isn’t the absolute best that it could be. We become blinded by the passion we have for the business, and while it’s critical that founders believe in what they are creating, this can be a challenge when you start moving towards investment.
After all, when it comes to raising investment, good isn’t always good enough. Statistics show that only 1 in 10 businesses that go looking for investment actually receive it, and of those who receive it, 50% have gone bust in the first five years. That’s a 5% total success AND survival rate for start-ups for the first five years. Not the best odds.
It’s challenging to find investment at the best of times, but Brexit (yes, sorry), has meant that some investors are slightly more nervous about getting out the cheque book. While no one really knows what the true economic impact of Brexit will be in the next five or ten years, there are few overtly positive predictions.
Investors are naturally a complete paradox: very risk averse and at the same time very risk happy.
They understand that investment is in itself a risky process. They don’t expect every single investment that they make to necessarily be instantly successful, and they are happy to take a risk if they believe, long term, that it will pay off.
On the other hand, investors are nervous about ventures that look very risky. They only have a few eggs to place in baskets, and one that looks as though it’s coming apart won’t be attractive to them. An obvious risk is one that they’ll step away from.
An investor who hasn’t been convinced by you will typically cite concerns they have about your business, and then step away.
So how do you reduce the concerns of your potential investors?
Understand what the actual concern is
One of the frustrations of talking to investors is also one of the joys: it’s a bit like speed dating. You think you like them, but you don’t want to show too much interest until you know that they are interested in you, too.
This is often why investors may use polite phrases to hide what they really think.
“I’m not sure I understand the product.” I don’t think anyone will buy it.
“The market is very challenging at the moment.” You don’t have what it takes to challenge market leaders.
“Your solution isn’t right for me.” I’m not convinced by your leadership team.
Only by careful questioning – and even more careful listening – will you start to uncover the genuine concerns that your potential investors have.
Address that concern at the heart of your business story
When you’re going through investment rounds, you have to be prepared to hear some harsh truths – truths that perhaps no one has said to you before. You must be willing to dismantle assumptions you have had about your own business for a while now, and look at it all dispassionately to ensure you address these concerns.
That usually means looking at the story of your business at its foundational level. Are you addressing the right audience? Is your elevator pitch fit for purpose after so many pivots? Do your vision and mission make coherent sense together?
Really spend time on this
It’s easy to want to rush this part of the process – but getting a new and updated pitch deck out as soon as possible isn’t always the best decision. You need to spend time crafting and honing your brand story, just as you did your product or service solution.
Investors are not really ‘buying’ a product. They are investing in you, and you need to have the right story in place to show them the journey you are going on.
If you truly disagree, use the rule of 5-3-1
Not every piece of feedback is going to resonate with you, so how do you decide what feedback to follow, and what to leave behind? Here at OggaDoon, we recommend the 5-3-1 rule.
Find five people that you trust, and who most importantly, have expertise in this area. Ask them about it, without being too obvious about your own opinion. If three of them agree with you, feel free to walk away from the person who gave you that feedback and find another investor who will understand your vision. But if you’re the only one, it’s time to go back to the drawing board.
Going through the investment phase of a start-up and scale-up’s journey is genuinely chalening. You will probably experience plenty of sleepless nights and second guessing, so make it as easy on yourself as possible. Reduce the concern in your potential investors, so they can become board members and go with you on this exciting journey.
Disagree with me? Email Emily now!