Investors for your startup come from your personal network. This includes family, friends, coworkers, past coworkers, and those you know through 1 to 2 degrees of separation. For most contacts, this comes to about 15 to 20 accredited investors.
The first place to start is with those in your network so you’ll get initial questions (usually easy ones) that you can start to flesh out your deal and update the investor documents. As you expand the circle from your close friends to acquaintances to friends of friends, you’ll find the questions become increasingly more difficult.
This initial phase is helpful in making sure you have the answers to the questions investors will ask. Some entrepreneurs are surprised at how some investors just don’t get it and why don’t they see the great opportunity it is. This is because the entrepreneur looks at the opportunity in the deal while the investor looks at the risk.
Although they understand there’s an upside, the questions will revolve around the downside. The key is to have a response for each risk and demonstrate how you have ALREADY solved it and not just promise to solve it. Here are some examples:
What if you can’t sell the product? We have already sold it.
What if you can’t recruit the right team members? We have already recruited most of the team members.
Once your deal fleshed out and you have some funding, you don’t want to take it to non-family and friends and say, “no one in my network would invest – how about you?”
That’s what they will hear, no matter what you say, if you don’t have some funding in the deal. Investors for the most part don’t want to be the first and they look for someone else to lead.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies