Welcome
Hey there Early Stagers…
In this week’s edition I have an open debt to close. Following last week’s how to choose the right investor, this week we’ll talk about how to get your foot in the door of that investor.
On top of learning how to approach investors I have an equation that will give you the competitive advantage you need to accelerate your PMF journey and share with you lessons that were written in blood.
So, take a zip of that coffee and let’s dive in…
Yours truly,
Avinoam
Opening the Investors' Door
Last week we covered how to choose the right investor for your startup. But choosing is only the first step. Now comes the hard part, which is to get in front of that investor (preferably more than one) and start a relationship that might lead to getting you funded.
I’m saying “get in front” and not “pitch” because you never ask a lady to sleep with you on the first date. The first date is just that, a first date. There’s a long road ahead of building trust and getting to know one another before you can get married (or funded in this case).
What I’ll try to teach you now are ways to get in the door, or ways to get that first date (if we keep the dating analogy).
Warm Vs. Cold
Ok, enough with the dating analogies. Let’s talk about trust. There’s a definition in marketing that states that a cold lead is a lead that doesn’t know much about you while a warm lead is a lead that’s already sold on buying from you.
The warmer the lead, the easier it is to close the sale.
If we take it to the fundraising world, the warmer the intro, the higher the initial credit you’ll get from an investor. This doesn’t mean you won’t have to work hard to get that investment, because you will, but it means the investor you’ll be in front of will associate with you the credibility of the person who made the intro.
Imagine if a friend hooked you up with a date, you’ll automatically be more willing to go on that date because you trust your friend. The same goes here…
What does that mean for you?
It means you should try to identify opportunities for getting that warm intro. But more on that later. Let’s talk about cold outreach first because despite what many founders will tell you, it does work…
How to do Cold Outreach
We’ve established that warm intros are better than cold outreach, but sometimes there simply isn’t a way to get a warm intro. So what do you do then?
You send a cold email (or DM)…
Doing so will mean that you’ll have to work harder at building that initial trust, but it is possible. Most investor actually do read their emails, and if they find something they like, they do respond…
The key is to show them that you did your homework and that you have a compelling reason to approach them. You do that by explaining to them why you chose to specifically send them an email and by showing them that they have a competitive advantage over other investors making them the best possible investor for you.
But don’t ask for an investment.
I see so many founders do this mistake. They send an email telling about how great they are and why Mr. Investor simply must invest in them. Forgetting that Mr. Investor doesn’t even know them.
It gives a bad vibe…
What you want to do, is ask for advice. Like the great American poet Pitbull once said: “ask for money, get advice. Ask for advice, get money twice…”
The purpose of your cold outreach should be to start a conversation, not close the deal. You want to let Mr. Investor that you value his opinion and that you’d like the opportunity to discuss what you are doing.
Coming in with that approach opens the door for a casual conversation where you can learn a lot from someone who knows the industry (otherwise, why did you want to get an investment from him) and start a relationship where you can showcase your progress and expertise (again, not all in one meeting…)
It’s All About Your Network
Now that you’re a cold outreach expert, let’s dive in to getting you some warm intros. I hope we can agree that trust is an important currency when it comes to intros. Whenever you introduce two people their impression of each other will be associated with you.
This means that if you want people to connect you to their network, they must know and respect you well enough and think that recommending you will picture them favorably with the person they recommend you to.
That is if they want to maintain their reputation and credibility…
This means you need to start building your network. You need people to know, like and trust you, so they can turn around and open doors for you.
The best people for that are other portfolio founders of your intended investors. These people should operate in your industry, have an experience worth listening to and can be a great resource to you, regardless of the investors they are connected to.
Also, it’s easier for founders to approach other founders for advice, making the required initial ask easier.
Once you start up a conversation with these founders, you need to build a relationship, prove yourself worthy, and give them reasons to recommend you to their investors.
I know it takes time, but if you go with that approach, you’ll not only get a great warm intros but you’d also build an amazing network of people that can help you along the way.
How to Start
Like everything in life, you should always start with what you already have. Look to your own network and see if there are potential connections you can leverage to get the doors open for you.
Once you exhaust your existing network, it’s time to expand. Find out about potential portfolio founders and start up a conversation through LinkedIn, Email, Facebook or a mutual connection.
You can look at Crunchbase.com or any other database or that investor’s website for a portfolio list and than go to LinkedIn or company website to start the conversation.
Pro tip – If you can’t find the founder, every website must have a privacy policy and/or a terms and conditions with an email you can use to start of the conversation.
The best advice I can give you is to always be genuine and focused. Be strategic with the people you connect with and build a value based relationship that will serve you in the future.
The best time to start is now. Don’t wait to the start of a funding round because building relationships takes time.
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Stories From the Trenches
In this section I’d love to share with you a few short stories that happened to me and my clients (with their permission of course) that will teach you valuable lessons about what to do or not to do when building a startup.
Chasing
The
Wrong
Solution
In mid October I had an idea for a tech solution to map underground tunnels. I started researching the idea, focusing on the solution I had in mind.
During my research I had a conversation with another entrepreneur which pointed out that there are much better solutions for this problem.
Conclusion: Always map every possible solution to prevent chasing down a the wrong one.
Focus
on Your
Real
Value
Proposition
Last week I had a conversation with a founder in the blockchain industry. He was working on a solution to create investment opportunities in developing countries and using crypto to overcome the funding problems.
He was struggling to find traction because he was focusing on the blockchain part of the business which pushed away traditional investors.
I helped him focus on the real problem he is solving: Creating investment opportunities in developing countries. In his case, blockchain is nothing more than an enabler. His real value is in the investment opportunities he creates.
I’m waiting to hear how this shift in focus is working…
What
Pitch
Decks
Are
All About…
A few years ago I went to a demo day held by the Founders Institute in Silicon Valley. They hosted a group of angel investors as judges and had a batch of 5 startups to present.
The first team took the stage to present their pitch which was very technical and focused on their solution (mainly technical details).
One of the judges gave them a brutally honest feedback stating that he is a business man, so he wanted to hear about the business.
The second team went on, and did the exact same mistake. A presentation filled with product details, but no business or market data.
The investor got so mad that he took the stage to explain his point about what investors look for in a pitch.
I remember this night because it gave me a new perspective about pitch decks.
It’s not about explaining the product, or even the market or the business. It’s all about selling your startup as an amazing opportunity. It’s about risk minimization and opportunity maximization. A valuable lesson for any entrepreneur raising money.
Startups’
Websites
Suck
Here’s
How To
Make
Them
Better…
Last month I was part of a project that caused me to review hundreds (seriously, hundreds) of startups websites.
I noticed that there is a clear pattern to how these websites are built, and it was one that’s causing them to miss a lot of opportunities.
The common startup’s website would have a catchy headline, with way too many details about the product and how it works. The more comprehensive websites would have sections about the team, and their story.
It was all about them…
Luckily, I come from the direct response world and I know that websites are supposed to be a selling tool. This means that they should be about the customer, not the company.
Your website should help potential customers initiate a conversation with your startup. It’s suppose to initiate your customer’s journey and push them into your sales funnel.
If you’re reading this, don;t make the same mistake. Build your website as a top of funnel tool, designed to make offers and generate leads.
How
Early
Fundraising
Can Kill
Your
Startup
3 years ago a founder came up to me with a request to help him raise a seed round.
He was working as a SW engineer at a company when he had an idea for an educational app to help kids study better.
He approached his boss about the idea and his boss gave him both time to pursue the idea and an initial investment to get him going.
But he took 70% of the future company…
I had to let this guy easy, explaining to him that his future boss had killed every chance he had for future investment because he took too much equity.
Any serious investor would not touch this startup because it left too little equity for the original founder which will cause him to lose motivation down the road.
Unfortunately I was right. 6 months later the same founder called me to tell me that I was spot on. Every investor he was able to meet with told him these exact words and turned him down…
The lesson here is: Don’t give up too much equity early on. It will kill every chance you’ll have for future funding.
The rule of thumb is 20% per round, leaving you with >60% at Series A (but this is just a rule of thumb…)
The Value Equation
One of the biggest drivers of every startup is value. We all try to bring more value to the world, with the hopes of being rewarded with financial gains. But what is value, and how can we enhance it.
The above equation is something I learned from an amazing entrepreneur called Alex Hormozi. It breaks down the components of what value is and how we, as entrepreneurs can enhance it.
Understanding what increases value (in the eyes of our customers) is a great tool to help us make smarter product and business decisions .
Increasing Your Product’s Value
Let’s break down the value equation to understand what each part means:
- A Result/Outcome
People buy products and services to get a result or outcome. This can be an elimination of pain or a gain of pleasure. What’s important is that they use your product to achieve that result. The bigger the result the higher the perceived value of your offer. - The Cost/Sacrifice
This is usually a sum of money your customer needs to pay, but more often than none, there is also an additional price that your customer needs to pay in order to achieve the desired outcome. This can be a learning curve, switching costs, work using your product etc. The smaller the price (note, not necessarily the monetary part of it) the higher the value of your offer. - Time Delay (or Speed)
The faster your customer can achieve the desired outcome, the higher it’s perceived value. In fact, speed might be the only thing that can beat a free competition… - Confidence in Result
A big part of closing a sale is the confidence customers have in us and in our product that we will be able deliver on our promises. There are many ways to increase perceived confidence. Social proof, experience, certifications etc. All these are things we can put in front of our customers increase the likelihood of us delivering the desired outcome. The perceived value of our product increases with the customer confidence in our product.
If you look at these four components you’ll see how different aspects of your product can be translated to value. You can judge each new feature and see if it’s increasing the overall value of the product and to associate it with one of the four parts of the value enhancers.
Additional Value Enhancers
The value equation is a great tool, but there are other tools you can add to enhance the perceived value of your product. These tools has more to do with marketing than product, but they are very effective in increasing value.
These tools are:
- Scarcity – It’s simple supply and demand. The second demand is higher than supply the value of a product increases.
- Association (or Status) – If our product signify an association to a desired group or social status its perceived value increases (Apple are masters at this)
- Guarantees – This is actually a part of the value equation as it help to increase the perceived likelihood of achievement, but it deserves another mention as it is not product related (and very effective).
- Bonuses – If you can enhance your product with additional products (preferably products that are low cost to you and high perceived value for your customers) you can increase the perceived value of your overall offer.
Conclusion
We went through the components of value. I hope this gives you a new set of lenses through which you can look at every new feature or product you build and make better, sorry, more valuable, products for your customers.
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