Thinking Like an Investor

2 min read A start-up’s ability to close an investor can make or break the company; to tie up the deal successfully and efficiently, you have to think like an investor.

Understanding what an investor is looking for in a company and its end goal will help you tailor your pitch and supporting documents to appeal to their specific wants and needs.

Below, we share with you what investors really want and how investors and venture capitalists make decisions. Continue reading to set yourself up for success.

What Investors Really Want

Most investors look for startups in which they can find a return on their investment. In the diligence and funding process, what the investor wants is not to lose all their money. Essentially, they want to reduce their risk to zero.

As a startup raising funding, you can help the investor find confidence in you by showing the risk mitigation you have put in place. For each concern, you should show how you’ve mitigated that particular risk.

For example, when asked: “How do we know the team will execute?”

Respond with: “We’ve demonstrated execution so far with these results…”

When asked: “How do we know we can sell the product?”

Respond with: “We’ve sold X amount so far and will continue using the same process.”

Remember where the investor is coming from and show how the risk has been reduced, even though it’s not zero.

How Investors Make Decisions

Entrepreneurs look at the opportunity in the deal. Investors look at the risk.

Two factors help the investor decide to invest or not. The first is the worst-case scenario approach. They look at the worst-case scenario. Oftentimes, this is them losing their entire investment or being stuck in a deal for the next decade with little to no return. However, if the investor can live with the worst-case scenario, then they move forward.

The second factor investors weigh when deciding whether to make a deal is reputation. How will this deal impact their reputation? Many have a standing in the community and their investor circle, and this reputation impacts how other investors treat them. They don’t want to be seen as the fool, and if the deal turns out to be a dud or even goes sideways, their reputation takes a ding.

In presenting your deal to an investor, consider how the investor will view the deal and its impact on them.

How VCs Make Decisions

Venture Capital investors make investment decisions as a group. Therefore, you must convince the team to move forward with the deal.

After the initial pitch to a VC investor, the startup meets the rest of the investment team and pitches the entire group. The team decides together to pursue diligence. With the diligence results, the team again comes together to make a go/no-go decision. The advocate for the startup makes a case for moving forward with the investment. It’s best to arm your advocate with enough information to make your case.

The startup should also remember that the advocate is taking both a reputation and financial risk on the startup, which is never easy.

Read more in the TEN Capital eGuide: https://tencapital.group/closing-the-investor/


Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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