The event included a panel on startup financing and the moderator asked Bill Reichert from Garage Ventures a question that every aspiring entrepreneur in the room was thinking: how do they decide which startups to invest in?
|Practice those pick-up lines|
Bill’s a great guy, a VC thought leader, and he gave a fantastic answer: you’ve got to make the investor fall in love with you. The dirty secret of early stage tech investing is that there’s so little data to base your investment decision on. If you’re investing in later stage private companies or public companies you have years of financial performance, market indicators, competitive analysis and historical trends that can inform your bet. That’s why later stage investors employ so many algorithms and analysts.
But what if you invest in brand new companies building brand new products based on brand new technologies that create brand new markets? Suddenly all those metrics go out the window. How do you evaluate ‘promise’ or ‘potential’ in a quantitative, replicable way? The short answer is “you don’t.” Early stage VCs make their decisions almost exclusively based on people. They need to trust in their gut that you’re smart, scrappy and dedicated enough that you’re gong to go to the wall for the opportunity. Good VCs have built up enough intuitive pattern recognition from working with fantastic entrepreneurs that they have a chance at spotting that kind of talent early on.
But more than anything else you need to make your VC fall in love. They need to fall in love with you, your team, your product and your market. They need to fall for you so hard that there isn’t even a true investment decision to make, they should feel like there’s no choice in the matter. You need to woo them so effectively that they will go the extra mile to bring their partners into the fold. You need to intrigue them to the point that they’re dreaming about you in their off time.
The beauty here is that you’ll need that same skill with romance in every other aspect of your business. If you want to be a great CEO you need to make your team, your partners and, most of all, your customers fall in love with you. So start stringing your bow and channelling Cupid, because you need the world to be your valentine.