One of our portfolio company CEOs recently asked me precisely when we knew we'd invest in their company. Was it love at first sight? Was it an intuitive gut feeling? Nerdy quantitative modeling?
I half-jokingly responded: "Yes."
Having met thousands of startups, en route to investing in just a few dozen, I've come to realize that the best investors employ four distinct decision-making processes executed over four different timelines.
I call them The Four i's:
Instinct - What's my blink reaction 7 seconds after meeting you?
Intuition - Is your story clear and compelling 7 minutes in?
Intellect - Does the business model & math check out 7 hours later?
Inspiration - Am I still inspired 7 days later?
7 Seconds: The Instinct Phase
It's amazing how much one decides, fairly or not, about you and your business in the first few seconds. Sure it's a cliché, but you never get a second chance to make a first impression. There's value in accounting for first impressions. Before we've had a chance to "fall in like" with someone... Before we've had a chance to "do the math"... You can only see things as an objective outsider with fresh eyes once.
Tips on making a great first impression:
1. Be Introduced: If at all possible, finagle a warm introduction to your potential investor. A personal introduction from their trusted colleague means that you're innocent until proven guilty. That is, from T=0, you're a friend-of-a-friend, and the beneficiary of what my friends and I call "Transitive Trust". Much better to start a dialogue from a position of warmth than a position of stranger-danger.
2. Be Brief: Great literature is marked by descriptive flourishes and suspenseful nuance. Great business communication tolerates neither. If someone can't smell what you're cooking immediately, they're simply not going to want to invest any time to sit down and read your menu, let alone consider your prices. Craft a concise personal headline, and an equally cogent company headline. Explain the problem you're out to solve, the novel way you solve it, and the value it creates for the parties involved. Then zip your lip and get out of your own way.
3. Don't, um, be tentative? Nothing kills your credibility out of the gate quite like tentative language. Ums, Likes, Kind-ofs, sort-ofs, and maybes. At their best, they're filler that connote a lack of confidence and/or control. At their worst, they're the mark of someone who doesn't understand or believe in their own business. Linguists believe that tentative language, and her equally wicked stepsister, up-talking?, reflect a speaker's desire to show deference to their audience by framing everything as, sort of, an open question? (This one time? at band camp?) Investors are looking for clarity and confidence, not queries and caveats.
7 Minutes: The Intuition Phase
First impressions have been established, and you're off to the races sharing the details of your business, past present and future. Entrepreneurs are typically exceptional people, and the temptation, for many, is to err on the side of making the presentation itself too clever; too precious in the telling of the tale.
Tolstoy, in Anna Karenina, said: "Happy families are all alike; every unhappy family is unhappy in its own way." And so it is with investment pitches. No one has ever been denied capital because his or her presentation format was too formulaic. Demonstrate your ingenuity with your business, not your narrative.
Tips on being intuitive:
Tell a clear and simple story that hits on what matters most, in a predictable order. Here is your cheat sheet for the perfect pitch:
1. Personal & Professional Headline It's shocking how many people never establish credibility by properly introducing themselves or their company.
2. Problem Worth Solving What is the singular itch in need of scratching?
3. Clear & Elevating Solution Your novel, elegant scratch to the aforementioned itch.
4. Moat What's to keep others from stealing your thunder?
5. Opportunity Size Why it's a 100x, 10x, or at worst, 2x growth story.
6. Customers Who believes in this enough to pay you today? Tomorrow?
7. Go-To-Market Strategy What's the plan, man?
8. Team Why are you the right jockey(s) for this horse?
9. Use of Proceeds What, precisely, will you do with our money?
10. Stick the Landing Call to action, inspiration, "Where do I sign?"
7 Hours: The Intellect Phase
We've shaken hands, come away smiling, and mutually agreed upon a timeline for next steps. My partners are now talking about you and your business behind your back, and my team is now crunching your numbers and researching your model, your sector, and your competition. Sizzle (story-telling) has given way to steak (business-modeling), and our self-described "nerds and wizards" are using Excel-and-friends to assess whether your business outcomes are likely to be half as rosy as your own portrayal.
By now, you've done most of what you can do to secure our interest, but there remain a few tips that can make all the difference.
Tips on navigating the intellectual shakedown
Drop a note to the investor to thank them for their time, but much more importantly, to share your thoughts as to how a specific kind of partnership with that specific investor might be uniquely beneficial. From my side of the table, there are two kinds of candidates: those interested in cash, and those interested in a partnership. The former forwards us "copy-pasta" (i.e. boilerplate messages) prior to, and shortly after, our meeting as a matter of their stark, industrialized, six-sigma fundraising process. The latter dares to devote a little time in thoughtful consideration of how we might be able to help them with our knowledge and/or our network. We've yet to invest in the former.
Provide additional materials, as appropriate, in response to key discussion points. Doing so demonstrates that you recognized specific areas of interest and/or concern during the dialogue, that you're willing to "open the kimono" as needed, and that you have the motivation and professional wherewithal to follow up. Importantly, this also arms the investors with the fodder they'll ultimately require for number crunching during their diligence. If you can surprise and delight your investor at this stage with an avalanche of rigorous, well-organized, supporting documents, they'll begin to rest easy knowing that you're more than a sparkle-fingered storyteller. You're the real deal.
7 Days: The Inspiration Phase
We typically allow ourselves a full week to green-light a deal, even if the number crunching only takes a few days. We do this primarily to overcome what psychologists call the recency effect. There's a tendency to give undue weight to the latest and the loudest. If we were forced to decide on a deal, a la Shark Tank, on the day we sat down with the entrepreneur, we'd probably write about 3 times as many checks. (In fact, it turns out the Shark Tank investors end up unwinding a healthy percentage of their deals after the excitement of the show taping subsides.)
By giving ourselves at least a full week to consider each deal, we're also forcing ourselves to begin engaging another fresh batch of 5 to 10 interesting companies. If your story is sufficiently impactful, sufficiently elevating, it will rise above the current clatter. As they say about the keepers: Absence makes the heart grow fonder.
The plain truth is this: Legitimate investment opportunities get more interesting, not less, the longer you spend peeling back the onion. This is precisely why car dealers and door-to-door window salesmen can only offer that "one-time deep deep discount" if you "act now!". A false sense of urgency implies desperation and helps no one.
The impact assessment isn't easily "gamed" through tips and tricks. You and your investor either have an organic affinity, or not so much. But honestly? That's totally ok. A week's (or heck, month's) courtship is small potatoes compared to the (on average) 7-year investment relationship that's at stake. Sales guru Mahan Khalsa nails it when he says that while there's "nothing wrong with [no], there's everything wrong with making [no] needlessly more expensive". Said another way: It's much better to part early as friends than to divorce downstream as bitter partners.