Entrepreneurs are, more often than not, extremely passionate about their startups. However, investors take an entirely different approach when analysing startups.
By Apoorv Ranjan Sharma
Drawing the attention of venture capitalists (VCs) is a dream of startups and entrepreneurs alike. An infusion of capital can help businesses strengthen their position, achieve their goals and eventually, make it to the top. But, most entrepreneurs are so blindsided that they fail to gauge the worth of their startups. First-time entrepreneurs often jeopardise their chances of raising capital by having a wrong outlook towards investors. Here are some things new entrepreneurs get wrong about investors.
Any investor is a good investor
Contrary to popular belief, an investor could do more harm than good. The thought of acquiring funds without having to pay high interest rate or increase the debt of the business seems quite lucrative. However, the wrong investor can not only undermine the business growth, but also harm the brand’s positioning in the industry. During the initial phase, entrepreneurs should do extensive research about prospective VCs and angel investors. An ideal investor should be someone who has already navigated the specific challenges pertaining to your industry.
Investor shares the same mindset
Entrepreneurs are, more often than not, extremely passionate about their startups. However, investors take an entirely different approach when analysing startups. Their decisions are based on cold, hard facts as opposed to emotions. While founders might think their business is best suited to receive funding, investors probably come across dozens of similar pitches every single day. In reality, most VCs see startups as deals and they expect good returns on their investments.
The investor is ‘interested’
Pitching to an investor is not much different than applying for a job. So when VCs say they are interested, they may not necessarily mean it. If they don’t proactively reach out to the entrepreneur post the introductory meeting, the chances of an actual investment taking place are quite lean. Sometimes, an investor could just be making queries out of curiosity or politeness. In such cases, entrepreneurs should take the straightforward approach and ask the investor directly.
The investor will come back to you
VCs are notorious for having short attention spans. Given they go through hundreds of applications, catching the eye of investors is a task in itself. The key to secure funding is consistent follow-ups. However, this doesn’t mean bombarding the potential investor with phone calls or emails. The approach should be strategic, not aggressive.
Investor doesn’t know anything
The general consensus is that investors are not knowledgeable. Trying to outsmart the investors is not an option, and entrepreneurs should rather focus on being transparent and candid with their idea.
Keeping a business up and running in today’s cut-throat environment is no easy feat. Of course, being new to the business doesn’t help either. But, a first-time entrepreneur who offers fresh ideas with great business potential can certainly catch the investors’ eyes. Ultimately, it all depends on the persistence, dedication and the risk-taking ability of the individual.
The writer is co-founder & president, Venture Catalysts