- Investment Tips From the Funder and Founder Perspective - March 3, 2020
Recently, Sofia Fund, one of the country’s longest-running angel investor groups focused exclusively on women-led startups, invested in StormSensor, a climate tech company that helps municipalities manage flooding caused by climate change.
Both company’s CEOs are highly skilled in their respective roles: giving and getting investments. Cathy Connett is CEO and managing partner of Minneapolis-based Sofia Fund, while Erin Rothman is founder and CEO of Seattle-based StormSensor.
Here, the two women reflect on best practices for acquiring investment at the startup level as they move forward in their new funder-founder relationship.
StartupNation exclusive discounts and savings on Dell products and accessories: Learn more here
Straight from the entrepreneur’s mouth
Get ready to drink coffee. And lots of it.
In the earliest days of your company, don’t yet be judicious with your time. Meet with anyone and everyone who is even remotely connected to the industry you want to serve with your business.
That includes investors, professors, other entrepreneurs, your friends who’ve done it before, and your friends’ friends. Aim for two, then four, then six or 10 meetings a week. Take notes. Listen to all the advice, even when it conflicts or varies from person to person. Pay particular attention to the nuggets of wisdom that come up more than once. Then, act on those pieces of advice.
Be prepared for any and every discussion related to your business. Have an elevator pitch ready that includes your value proposition. Try it out on your friends and family and make it snappy enough so that people remember it and can pass it on to others. Make sure it is compelling and clear – eliminate industry specific jargon and acronyms. Keep it short and make it memorable.
Attend startup events in your community and remember to bring business cards. Attend at least one event per month. Even if you’re an introvert, like me, put yourself out there and, since you’ve prepared and practiced your elevator speech, you’ll confidently have something to talk about with others. Step into the room with a mission in mind, like finding two investors to meet for the first time, connecting with three other founders, or listening to a presentation, then introducing yourself to the speaker.
When seeking out investors (here’s a great list of early-stage VCs), look for the right fit for you. There are thousands of investor groups. Each one has a specific investment thesis that defines their focuses: on industries, certain technology, stage of company, size of investment, and founders who may be women/non-binary gender/people of color.
By researching these groups, you understand how they think and what they want, which helps you effectively communicate with them.
Approach investors that make sense for your business and keep track of who you’ve approached and through which platform; many companies use Gust or Angel List, for example. If warm introductions are possible (and those odds go way up if you’ve done all the work described above), take advantage of them.
Have all of your information ready before you approach investors. Make sure everything is cohesive — your executive summary should match everything in your pitch deck, your pitch deck should match everything in your financials, etc.
Just like your elevator speech, be concise, yet compelling. Hone your communication and presentation skills. Investors want to believe in you as the CEO or founder. In the end, their decision will be swayed by determining if they are comfortable investing in you.
Your company and your direction will change over time. Potential investors want to know that you can take this on, that you will push it across the finish line, that you have the vision and the skills necessary to make the company thrive by building the right team and product. Your materials and your style must make an incredible first impression.
Even after all of this, be prepared to face the reality that, as a woman, you will have to prove yourself more quickly than a man. Most likely, an implicit bias will be present that is deeply engrained into the investment culture.
Statistics continue to prove the fact that men win more investment dollars than women. Yet, even with this unfair advantage (and highly illogical, given that women make 20 percent more return on 50 percent less investment, on average, than other companies), it doesn’t serve you to take the situation personally.
You can recognize it. You can advocate for change in the industry. But, until the environment for women entrepreneurs improves, you’ll just have to be better than others when asking for money. Better prepared. Better at speaking, leading and listening.
Facing and overcoming any situation ultimately makes us better entrepreneurs, who start and grow amazing companies, with investors who are believers and supporters and deserve to share in the rewards.
From the investor’s point of view
One of the most important strategic decisions that an entrepreneur needs to make early in his or her journey is to determine a vision.
What problem will your business solve? And how will you fund your venture?
If you’re considering seeking investment, the very first thing to understand is what investors are looking for.
Investors have money and resources that can help you achieve your vision, but you’ll need to sell them on you, your idea and your business model. You need to articulate the opportunity and how and when they will get their money back (with a great return).
Investors want to leverage their investment for success that rewards your team for their efforts, while also providing themselves with a return appropriate for the risk they took. The earlier investors put their money into your company, the greater their risk and, therefore, the greater the expected return.
Knowing this, communicate the following early in the conversation with any potential investor:
- Share your vision for the investment opportunity, how will you achieve it, and why you will succeed
- Communicate the value proposition that you will create for customers and potential exits. Most exits are not tied to a sales number, but to the value the other party derives from the assets they acquire from you. These assets may be tangible (a patent, for example) or intangible (such as the brand you’ve built)
- Define your team and the roles they play in helping you succeed
- Communicate the risks you foresee
- Define the milestones that the investor’s money will help you reach
- Investors assess how efficient you will be, both with the resources you control and those you don’t, in achieving these milestones
- Describe the potential opportunities for an exit that will provide liquidity for you and the investors
With 25 plus years of hearing company pitches, I am able to instantly pinpoint common themes that make your deal uninteresting to potential investors.
First, some entrepreneurs do not think big enough and/or they are too conservative in their articulated approach to the opportunity.
They approach investors with a “make a little, sell a little” mentality. If you have a big, fast-developing or disruptive opportunity, the investor is excited and interested in considering it because the returns are likely more appropriate for the risks. Investors in early-stage companies are comfortable identifying and accepting risk.
Similarly, the entrepreneur who cannot meaningfully address the opportunity, the risks, and the strategies for achieving success will not succeed in selling investors. Part of the “sell” to investors is getting them to believe the opportunity is there and that you and your team can win.
Always remember to leverage professional assistance when approaching sophisticated investors. In the spirit of bootstrapping, many entrepreneurs try to do too much themselves.
For example, financial projections should reflect the business model and its realties of deferred payments, inventory builds, contract completion issues, etc. If you don’t have the skills to incorporate these details into your financials, hire a fractional CFO at a reasonable cost.
When it comes to securing funding, take the same “close-the-sale” approach with investors as you do with customers. Sales to both of these groups take preparation, informed discussions and perseverance.