Investors are just like other humans; creatures of habit. They tend to invest in what they know, and tend to quickly reject anything outside of their comfort zone. Mind you, this is a general analysis and there are certainly exceptions. But as an active investor, the first items I look from a pitch are; what size is needed, what are my risks and does this type of investment fit my strategy. As mentioned in previous articles, from the beginning of the pitch, entrepreneurs are battling uphill. Mind you, investors like me want deals; we need deals. We need our money to be working for us. Idle money is not ideal money. The question is, do we want to invest in your deal?
To save you and your investor time, before diving into your pitch, clarify with the potential investors their investment strategy, the ideal size of their investments, and the normal duration of their investments. Here you can possibly gauge their strategy, size and risk. I call this knowing your investor.
Trying to pitch an angel for a monetary allotment much larger than their normal investment tends to yield little fruit. The same applies generally to pitching a multi-billion institutional equity investor on a small loan. Investment strategies and sizes are exponential, so knowing the ins and outs of each are not important. What is important is to know the type of investor, their strategy, size of investment, and risk.
A few strategies include:
- Value – Value investors are looking for bargains. They believe the investment is undervalued compared to other comparable companies in the same industry. If you believe your company is not being valued fairly, these are the folks to make your case.
- Growth – Generally, growth investors are valuing your business in the future. Unlike “value investors” who seek undervalued assets now, growth investors use their own formulas for future valuation. If you are betting the come line, these funds are for you.
- Sector or Industry – Many funds know one or a couple of industries from top to bottom. Seeking funds that specifically focus on your industry tends to be a great start.
- Size and Risk – These tend to be self-explanatory. Understanding how much a potential investor is willing to invest on their first rounds, and expected return of investment are key to making calls and meetings productive as possible.
There are many other strategies, some of which are combinations of the categories above. Be very curious at the beginning of a conversation with a potential investor on understanding their strategy. Ask about previous deals. Ask specifically what they liked as well as about other deals they turned down. Approaching investors is quite similar to any sales position. The more you know, the more likely you will achieve greater results in an expeditious manner.
All the Best,
Matthew L. Schissler