November 30, 1999 in ATDC News

Avoiding DOA Part II: Investor-Centric

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A few weeks ago, I teased that strategic fundraising is investor-centric, milestone-driven, realistic, targeted, anticipatory, and market facing.  So let's start with the first attribute and discuss what it means to be investor-centric. 

In my experience, investor-centric fundraising is a capital marketing effort focused on the needs of investors.  This sounds simple, but in practice it is quite difficult.  Why? Often entrepreneurs don't view their equity as a product nor their investors as customers.

The first step in implementing investor-centric fundraising is to identify who will invest in your company and why.  You have probably heard about the various "types" of investors ranging from friends and family members to institutional venture capitalists to banks and public investors.  Generally speaking, each type of investor has a common set of attributes that provides clues on how you should market your investment opportunity.  For example, friends and family members are usually not sensitive to valuation or dilution; however, these issues are very critical for venture capitalists and sophisticated angel investors.  With that said, be careful and use these generalities with care.  In the "real world" you will find many exceptions to these general stereotypes.  Don't be surprised if you find an angel investor demanding sophisticated deal terms, or a venture capitalist driven by both financial and non-financial considerations.  While you can initially group investors based upon a high-level classification, remember, there is no such thing as a "typical" investor and your job as     a fundraiser is to understand the specific attributes of the specific investor that you are targeting.

One of the most important attributes to identify is an investor's motivation for investing in your company.  You will rarely find an investor that shares your passion for you company's technology, products, or the market that you serve.  In most cases, an investor is not motivated by the innate qualities of your company but rather, they are motivated by what an investment in your company enables.  For example, some angel investors are motivated to make a difference in their local communities, most institutional investors are motivated to provide a financial return on someone else's money, and many corporate investors are primarily motivated by strategic benefits that an investment can generate.  While each investor's motivation is different, every investor is motivated by something.  The key is to identify that "something" for the specific investor that you are targeting and to market your opportunity accordingly.  In those situations, when you discover that your opportunity is not consistent with an investor's motivation, don't waste your time trying to convince an investor of the merits of your opportunity, but rather spend your time finding another investor.

Another critical step is to understand your investor's approach/strategy to investing.  Do they prefer to invest alone or with others? Are they willing to invest in an opportunity with technology risk?  Are they looking for gargantuan billion dollar markets or are they comfortable with highly profitable market niches?  You can find answers to these questions by perusing an investor's website and, more importantly, by networking with other entrepreneurs and connected professional services firms to receive insights on not only what an investor says, but what they actually do!

Entrepreneurs that are investor-centric clearly differentiate themselves from their peers.  Such an approach saves critical time by focusing only on investors that are truly a fit for your company and ultimately positions you to negotiate an investment that is a "win" for both your company and your new investors.

For more information on choosing an investor:
Inc. Magazine
Venture Choice

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