When raising capital from investors, it’s crucial to generate momentum around your company. Often, the hardest person to get on board is the first investor. Don’t worry; it’s not you, it’s the — 99 percent of all investor pitches inevitably end with a “No,” so the deck is stacked against you from the outset. The good news is that you can use a little psychological jujitsu on investors to convince them to get onboard.
The trend is your friend
There’s nothing that appeals to investors more than being able to invest in a “hot” company in a “hot” space with a “hot” product. You’ll be surprised at how adept investors are at making the numbers work if they are convinced that they are getting to invest in a hot company. Conversely, the numbers will never work if investors don’t think that you are part of a significant new trend in the marketplace. So, whatever you do, make sure that you optimally position your startup so that the trend is your friend.
The power of FOMO
One of the most powerful feelings that an investor can feel is FOMO, or the Fear of Missing Out. This is essential Marketing 101 — you always want to introduce an element of scarcity into any pitch. Ever wonder why advertisements and other pitches always include a line like, “Hurry, act now before we’re sold out, supplies are limited…” Well, you can apply this same logic to the fundraising process. Your fundraising round should always look like it’s almost full (i.e., you’ve raised 80 percent of your target round, hurry act now!), and that investors are clamoring to get on board (supplies are limited!). If you can show that most of your round already has commitments, or that you have a lot of big-name investors already onboard, your startup is going to appear much more tantalizing to investors.
Never let them know how much you need the money
There’s an adage in the financial services industry that the people who need the money the least are also the ones who make the most attractive targets. So put that to work for you during the fundraising process. As best as possible, never let investors know how much you need the money. If investors think that you are burning through cash, and are about to run out of runway in a few short months, do you think that they are going to throw good money after bad?
One way to go into any VC meeting feeling confident, then, is to make sure that you don’t need the money, and that you can walk away from any deal if it doesn’t make sense for you. Once investors smell weakness, they may offer you the money — but they will take their pound of flesh along the way. One trick here is to raise a minimum amount from angels (or angelic family members) so that you have plenty of time before you run out of cash. This will give you the freedom to talk to serious VC funds on your terms — and you won’t be forced to hand over a nice, tasty morsel of equity to sweeten the pot.
Getting your first “Yes” can be a complicated, challenging process. But once you understand the unique mindset of the typical VC investor (i.e., someone who wants to make as much money as possible with the least amount of risk possible), you can walk into any investor meeting with the right amount of confidence. You won’t be begging for money. Instead, you’ll be entering into a financial transaction that makes sense for both parties involved.