Many people have asked me what advice I can give to entrepreneurs that are trying to win over an investor. As I thought about the most important piece of advice I could share it would have to be the same advice I wrote back for Forbes when I was just a year into becoming an investor after my twenty year journey as an entrepreneur myself. It went something like this:
When you meet with an investor you have to learn to be optimistic in a uniquely realistic kind of way. Realistic is painful for entrepreneurs because it feels like they are saying they don’t believe in themselves or their idea. They tend to be constantly in “everything is going to be AWESOME” mode, especially when they are presenting to a potential investor. Herein lies the problem – that investor is about to take their own hard earned money and they are going to gamble that money on one thing and one thing only – trusting the entrepreneur.
Sure, the idea matters, as do market size, revenues and costs, but more important than any of those factors is the person in charge. A fantastic leader with a poor concept will somehow find a way to make that endeavor a success, but a poor leader with the best concept will almost always result in a failure. The investor is paying as much attention to the entrepreneur as an individual as they are to the idea; they are looking for an entrepreneur they can trust with their hard earned money. Thus, the way the entrepreneur presents his or her idea will either inspire trust or destroy it.
Let’s put this into perspective with a familiar scenario: Imagine a teenager taking his parents’ car out for a drive by himself for the very first time. The teenager comes to parent and says, “I’ve got this. No problem. Don’t freak. It’s all going to be fine.” The parent’s first reaction is: “Oh my goodness, they are going to total my car and end up dead or in jail.”
Now let’s try a different approach. The teenager comes to the parent and says, “I want you to know that I realize that driving a car is a huge responsibility, and one that requires serious attention to my own driving as well as the driving of others around me. I know that despite my driver’s education training, the fact is that there will be unforeseen circumstances that could arise during my trip, and while I don’t expect anything bad to happen, I have thought through how I would handle any difficulties that could arise and I have tried to prepare myself with the proper emergency supplies, flares and jumper cables so that I will be able to handle anything that may happen along the way. I also realize that you have a right to worry about me, and I will do what I can to communicate throughout the night so that you don’t have to wonder whether or not I am OK and on schedule to arrive home safely.”
Now, if there were a teenager who actually said that to his parents, I am quite certain the heavens would part and choirs of angels would be singing the Hallelujah Chorus. The point I am trying to demonstrate is to imagine how good the parent would feel about trusting the child who approached it that way. Imagine the trust that would be inspired by knowing that while the teenager was optimistic, everything would be okay, they were also responsible enough to admit that life doesn’t always go as planned and they were thinking through those “what ifs” in order to be properly prepared should the need arise.
Note that the action being contemplated was the same in both scenarios – the parent was handing their keys over to the teenager – but it was the teenagers approach to asking for those keys that made all the difference in inspiring the trust from the parent.
So, entrepreneurs, as you prepare to meet with investors, remember to present your idea like the teenager from scenario number two. Go in with an optimistic attitude about your idea, but don’t wait for the investor to start poking holes in your presentation with all the “what ifs.” Instead, take the lead and before they can ask, tell them about problems you’ve anticipated might arise. Help them see that you are putting careful considered into all the possibilities of what could go wrong. Let them see you are making the best preparations possible to be ready to handle them if they should occur. And don’t be afraid to offer a few “flares” and “jumper cables” to prove you have thought through it.
So there you have it – the most important advice I can give is to be totally real and honest and upfront with investors. They are going to find out the truth at some point anyway and it will go a long way to have that truth come from you. Don’t fall into the insecurity trap of acting like you know everything, or by saying things like “There isn’t a competitor that can do what we do”, or responding with “That’s easy…we aren’t even worried about that”. Remember, its not a bad thing to admit the fears about the business that make you lose sleep at night. In fact it can be the smartest thing you ever do because many investors are looking for opportunities where they are able to contribute more than just money – they want to contribute the knowledge and experience they’ve gained and will often choose deals where those other contributions can have the greatest impact.
~Amy Rees Anderson