Most investors consider the step after an interesting pitch to be a longer format "deep dive" kind of meeting. In Ducks in a Row: Prepping for a Deep Dive Meeting with Investors, you learned what a deep dive meeting is, and, more importantly, how to prepare for it. Now let's look at how to actually navigate your way through it so you can move forward with investors into and through the due diligence process. The main point of these deep dive meetings is to convince investors to move forward. So how do you do that without tripping yourself up?
Navigating the Meeting
Surprising as this might be to some entrepreneurs, this meeting is as much about you as it is about the company. Many investors feel strongly that the team is more important than anything, including the market. So a major goal of this meeting is to earn their confidence in you as a founder and a person. That takes people skills. You will need to walk this very fine line between, on the one hand, presenting yourself as a knowledgeable and confident entrepreneur who is a leader able to control a room and stay on topic, and on the other hand, being coachable, open to suggestion, a good listener and a facile, comfortable on-the-fly thinker. Finding the right balance is every bit as hard as it sounds.
Clarify What Is Being Asked
Since the format of a deep dive meeting is essentially a Q&A session, your body language and how you initially react to questions is as important as your ultimate answer. It never hurts to try and smile a bit (or at least avoid a grimace of pain) and it is generally a good idea to acknowledge and validate the question with a quick "good question" or "I'm glad you asked that" or "let me see if I understand what you are asking." It is very important that you understand what is being asked, so ask clarifying questions to avoid:
- Looking like a poor listener and poor communicator who doesn't understand or care what is being asked;
- Appearing evasive or like you are trying to avoid a question simply because you are mistakenly answering the wrong question; and,
- Accidentally introducing a bunch of extraneous information while answering the wrong question - you could end up raising a host of issues which were never on anyone's mind until you opened the can of worms. Just like in court - make sure you don't over answer.
In fact, it is a really good habit to go beyond the actual words and see if you can (diplomatically) figure out or clarify what the "question behind the question" might be. Sometimes investors are worried about an issue, but they ask around it; probing the "symptoms" instead of hitting the issue head-on. Going directly to the source of the anxiety can save a lot of trouble for you.
Building Confidence Through Rapport
It can also be very helpful, and go a long way toward establishing rapport, to repeat the question back in your own words and try to figure out and clarify what is really on their mind. For example, if they ask you about your cost of customer acquisition, they may really be trying to get at how you are going to go to market and what kind of sales approach you are going to use. Ultimately your goal is to drive clarity and build confidence in you and in the plan. That takes communication and effort.
This kind of back and forth, seeking to understand, paying attention to and respecting the questions has tremendous benefits and builds comfort with the investors. At the end of the day, you are trying to establish a feeling of partnership. You are not trying to convince people that you are the smartest person in the room, that you know everything or that you have all the answers. You are trying to convince them that you are smart and have thought a lot about the problem. That you have some good ideas, and some good reasons for holding those ideas, but you are not required to have it all figured out. It is OK to admit that you are learning and adapting as you go, as long as they believe you are determined to get there in the end.
How you react to a question to which you don't know the answer is a perfect microcosm of this dynamic. Your first instinct will probably be to panic, or maybe even to make an answer up. Those are the worst possible reactions because you've let the question sink you.
Instead, try to use the question as a showcase for how you work and an opportunity to build rapport. A perfect response to such a question should be some variation on: "That's a good question. In truth, I am not sure. But here is how I think about it: my sense is that it would probably be xyz, because of this reason or that reason. And we've got a little data to back that hunch up. But we don't really know for sure, and there is more work we have to do on that. What do you think about it? How would you go about figuring it out?"
Remember, investors are people and people instinctively respect that kind of candor and will trust you all the more for it. And at the end of the day, it is their trust and respect you are after. They know the road ahead is going to be hard and uncertain, so they need a reason to bet on you to get them down it. Some good prep and a plan for navigating the deep dive meeting can make a huge difference. Next up we'll cover some traps you will want to avoid during the meeting so you don't undermine yourself.