Want Financing? Sounds Crazy, but Make the Investor Feel Insecure
Fundraising becomes a necessity any time an entrepreneur needs money to launch a business. Raising money certainly isn’t a fun experience for anybody, but fundraising is a process that helps entrepreneurs improve their pitch and fine-tune their business model. In my experience there are two main reasons investors sign a check for any new start-up. The first is greed, while the second is every investor’s primal fear of missing out on a great opportunity. It has been my observation that the investor’s fear of “missing out” is far more formidable, one that entrepreneurs have tremendous power to influence.
Every entrepreneur who has tried to raise money for a start-up has encountered a long list of investors that say they are interested in a company’s idea, product or vision, only to watch these coveted investors remain on the sidelines. For any new company looking to secure financial backing, frustrations like these can be maddening, even disheartening, as dreams for start-up success always seem to be one more meeting or conference call away. As an entrepreneur it can be easy to blame those investors that keep you at arm’s length, but the truth is: This failure falls directly on your shoulders.
Simply put, you—the entrepreneur—have failed to make the investor feel insecure about the deal.
Inevitably, all investors want a company to be as far along as possible before committing their money. This is how every investor manages risk. In order to get them to write a check now, however, the entrepreneur must make the investor feel that if they don’t write that check right now, the opportunity will pass and they will miss out on the next Google or Uber. As such, one of the essential jobs of any entrepreneur is to leverage this feeling of insecurity that exists inside the mind of every investor.
No matter what investors say, financing a start-up is not a rational or logical decision; it is dictated by emotion. Investing in a new company’s product or vision is a high stakes gamble, with the odds stacked squarely against both entrepreneur and investor.
The only rational move for an investor is to evaluate a start-up’s progress over a certain period of time, the beginning of which starts at that first meeting. From that point forward the entrepreneur is competing against a host of other interests vying for that investor’s dollar. Sure, the competition might be other start-ups seeking financial backing, but it could also be the investor is interested in buying a vacation home, traveling to Europe, or needs to pay for his daughter’s wedding six months down the road.
The best way for entrepreneurs to secure an investor’s attention is to demonstrate substantial progress from one meeting to the next. At this point in a start-up’s life, its team needs to be both productive and creative in order to maintain an investor’s attention, and to keep him or her believing they are part of the next Google or Uber. You, the entrepreneur, need to wow them at every meeting by demonstrating new partnerships, new sales opportunities, new solutions to pressing issues, new team members and more potential investors eager to write checks. The moment this progress stops, the new start-up is doomed to lose.
Of course your company needs money to move forward, but progress without financing communicates to investors that a start-up can succeed with or without them. For the entrepreneur, to demonstrate this is the best way to make an investor feel insecure. And it is this insecurity, as I’ve said, that compels the investor to write the check.
The farther along a start-up gets on its own, the more the investors will worry that if they wait too long they may miss out on the next big thing. So yes, a start-up’s progress certainly does drive that sense of insecurity living inside every investor. On the other hand, a start-up that waits for funding to move forward will be waiting a very long time.