The game for raising money has changed. Learn to change with it.
How people raise money is changing. No longer does a visionary short on funds have to appeal to a small crowd. With the rise of crowd funding, angel investors/networks, & niche venture capitalists the landscape is wide open. It will only continue to get more decentralized with time. But having more options is only as valuable as the ability to identify wants & needs. A bigger, healthier grocery store will still lead to random trips down aisles & unwanted purchases if there is no understanding of needs beforehand. So, by having a better understanding of what motivates an investor & knowing how they think, an entrepreneur more easily can weed out cancerous money & connect with people that will help accelerate the venture’s growth.
After unsuccessfully raising a round of capital for a software venture, I was interested in learning how investors thought & what motivated them. So I went out in 2012 and interviewed around 30 early stage investors from some technology ‘start up’ business hot beds across the United States – Austin, New York, Boston, San Francisco, L.A., Seattle, Boulder, D.C., and some others. I interviewed each investor across 5 different themes:
- How/Why they ended up early stage investing?
- What made them pull the trigger on past investments?
- Turnoffs/Redflags for a future investment?
- Future trends that excite them?
- Best ways to connect with them as an investor?
Patterns emerged from those questions. The patterns are outlined below. For each pattern below I have constructed a compilation of bite-sized interviews from the investors. Those bite-sized interviews can be found here. The linked content is constructed in the same way as the book Do-More-Faster, by the Tech Stars gurus Brad Feld & David Cohen. Each bite-sized interview is powerful in and of themselves but as a whole the interviews reflect patterns across each question above from differing perspectives.
Patterns from 30 investor interviews
Q1. Why early stage investing?
- Reason 1: Concept of paying it forward
- Reason 2: Broad & shallow > than narrow & focused.
- Reason 3: Informational Advantage
- Reason 4: Market Opportunity
- Reason 5: Startup experiences were tapped
- Reason 6: Enjoy being around entrepreneurs & startups
Q2. How did you end up in early stage investing?
A.) Historical entry points to venture capital
B.) Entry points
- Successful exit
- Fell into it
- Fellow program
- Relevant path with proven success
Q3. Motivation for past investments?
- Reason 1: Equation based investing says yes
- Reason 2: A passionate entrepreneur
- Reason 3: A trusted entrepreneur
- Reason 4: Traction or customer growth path clear.
- Reason 5: Intellectual property or ground breaking technology
Q4. Turnoffs or red flags in entrepreneurs/ventures?
- Lack of empathy
- No domain & tech expertise
- No intro- cold call, email, etc.
- No minimum viable product
- No bottom up market analysis
- No intellectual property
- Ecommerce: “Time for change”
- Education: “Flat world, blending learning, & ROI”
- Software-as-a-service: “Reinventing distribution of the enterprise”
- No Trends: “Entrepreneurs forecast the future”
- Payments: “Painless, fast & easy”
Q6. Best practices for connecting with the investor?
- Must be an introduction from a respected source
- In person event meeting