Hopefully you read the first part of this series outlining general statements and not very specific things founders say and how investors perceive them.
Everyone always asks why we invested in a startup and we can give them anecdotal answers but I thought it would be easier to show you why as well. The first post deals with things that aren’t generally received strongly, so below I will show you how to make them stronger and own the investment process. Hopefully this will make the investor scream YES on the inside.
So lets get right to it on a better way to approach and talk with an investor:
Founder: They found a mutual friend to do a double opt-in email or emailed me with a subject of “Invest Opp — Startup X”
Investor: I trust and respect this person so I’ll take this meeting / they read our website and followed the instructions. Nice.
Founder: A direct email from them saying our mutual friend Jane Smith (CCed possibly) recommended I reach out because you are an expert in this industry.
Investor: Alright they found a friend who thinks this is worthwhile and will vouch for them
Founder: I would love to meet up and discuss the startup I’ve been working on with my co-founder for the last year. We’ve bootstrapped to date, launched a few months ago and have had amazing traction so far, along with some big partnerships that you can see below.
Investor: Hmmm, ok — they put the in work and are already seeing some results so I’d like to learn more.
Founder: If that’s ok, here are three dates and times I’m available and I’d be happy to come by your office or have you at ours.
Investor: Perfect, date xyz works great if you could send over an iCal.
Founder: [in email] I’ve attached our deck, along with financials, some press and customer referrals as well.
Investor: Wow everything I need right away — let me skim through some of this and get back to you.
Founder: Our company name is Startup.com — we like to be very literal so everyone knows exactly what we do / it’s a Latin word for prosperity.
Investor: Good name that evokes xyz, is easy to pronounce and says what it does.
Founder: I’ve been working in this industry doing business strategy for 10+ years, my co-founder CTO has a PhD in Rocket Science and the third has been in marketing for 10 years as well. We’ve all experienced this problem and want to solve it.
Investor: Wow! Very well rounded and have dealt with this problem firsthand.
Founder: There are some other companies doing similar things but we have proprietary technology (patents pending) and the unfair advantage through our experience and connections to get out in front.
Investor: yay preverbal moats!
Founder: We’ve met with and are currently in discussions with Big Name Corp and a few others to sign contracts for xyz. We’d be happy to show you them.
Investor: I know that company and they would only do business if this was solid.
Founder: We’re raising $1M to hire a head of sales, two customer support / account executives and three developers that we’ve already met with and just need the funded to bring them all on board.
Investor: Huh very proactive and saves time so they can hit the ground running once they get funded.
Founder: Right now we believe that a $4M valuation is suitable as it will sell ~20% of the company, not dilute us heavily and set us up for our next round based on our projections.
Investor: In control, reasonable valuation and thinking long-term.
Founder: We currently have a few term sheets from Awesome Ventures and Best VC and are currently negotiating terms to decide which can be the more strategic long-term.
Investor: Awesome I know both and each would be a great value add — I’ll touch base with each to learn more.
Founder: Best VC Ventures is leading our round and we’d be happy to share the term sheet with you. All investors will receive pro-rata because we want to take care of those who were there for us first and we’ll send out updates every other month to keep you informed.
Investor: I know them well and look forward to investing in your next round because I have the legal right to do so.
Founder: Myself, one of our lead VCs and Jane Smith will make up our Board of Directors.
Investor: Glad to see that is in place.
Founder: We’re currently doing $20k MRR, plan to have $100k MRR by the end of the year and are projecting $50M of revenue in 5 years.
Investor: That’s some nice early traction and reasonable—ambitious to 5x in a year but that’s what it takes.
Founder: Here is a timeline of what we’ve done so far and our product roadmap that will allow us to hit our revenue projections. We want to launch our subscription feature to coincide with the budget planning of our customers.
Investor: Now I know how you’ve gotten to this point and what it will take to grow the business to the next level.
Founder: Based on our unit economics and burn rate, we’ll breakeven in 18 months but plan to start raising before then to really accelerate our growth.
Investor: Wow, that’s a pretty detailed financial breakdown and will allow them to raise from a position of strength.
Founder: We have $300k left in the round if you know any strategic investors in our industry that might be interested.
Investor: Happy to and now I have a range because I know certain VCs have a minimum check size / % they need to acquire.
Founder: We’re using Big Name law firm.
Investor: Might be a little costly but they know what they’re doing.
Founder: We want to get on the radar of Google, Apple, Facebook and/or Amazon early so they can track us. We’ve also reached out to their teams through mutual introductions to start conversations early for partnerships to see if there is anyway we can work together.
Investor: Bold strategy but you’re thinking ahead.
Yes I know what you’re thinking… This is intense and obviously doesn’t sound like most startups at the early stage. It’s true but the closer you are to sounding like this, the better your chances are of getting funding. You don’t need to say all 20 of these phrases — we would all love a big name VC to lead our rounds — so just make sure everything is buttoned up and we can tell you put a lot of work into this.
We’re investors and by professional nature are risk-adverse to some extent, yet ironically at the earliest stages, make the riskiest investments. It’s your job as we always say to “raise from a position of strength” and de-risk this enough to get us comfortable to move forwards. There will always be issues and problems that arise so we’re betting that you’ll figure it out.