I was asked a straightforward question by another founder recently. “How should I approach a potential investor?”
Although it’s a straightforward question, the answer is quite nuanced and depends on the specific situation at hand. All investors are different and appreciate being approached in varied ways. So given that, here’s what I responded with through email. (I have removed any details that would suggest a certain person or industry)
You need to find someone who you connect with and have a similar view on things. This is why I suggested talking with people that are already into ____________. They should at least “get” your idea and thinking behind it. An investor that usually puts money into software companies probably won’t get it.
So I think you need to continue to look deeper in that community. But you can’t just send an email and ask for their money right up front. Everyone’s knee jerk reaction is no. This is the biggest mistake people make, just like the guys that hit on the women at the bar. Instant turn off. You need to do what you are doing with me and get to know them, allow them to get to know you and your idea. Don’t worry about “giving away your idea” as I have learned it’s better to connect with many people and hopefully there’s a possible business relationship than keeping your mouth shut and then nothing happens. Ideas are a dime a dozen… work on extending your relations with people in the industry.
B) Early success
Most all investors need to see early success indicators. That is why if you can show some early traction as well as some profit, they investors are way more willing to put in some money to help it grow. Although ideas are a dime a dozen, that’s all they are. But a product that has shown some early promise is music to an investors ears. They need to be able to see it, feel it and touch the prototype, or in your case see your early small tests as successes. Once you can show them real numbers you then build out your model of future projections – based on your real numbers – and show them how their money will be multiplied.
The last one is you need to find people who you trust, and who trust you. This goes back to a) in the way I say find someone you connect with. Turning the tables and looking at it from their point of view…. some random guy is emailing them and asking them to put money in something they don’t know anything about. Basically, they don’t trust you. So you need to work on finding someone you can work towards trusting, and he can work towards trusting you. This takes time.
That’s why your lead into the relationship is more like “hey, I have some ideas I want to run by you, I would appreciate your perspective on these ideas…” Don’t even mention money for the first few interactions, and when it comes up you can say something more like “to scale to the level we want to we would need some capital investment. I’m starting to look around, do you know anyone who would be interested?”
Finding investors to put money into your company is hard enough, make it easier on yourself by doing some legwork first.