Other people's money
7 principles of communication with investors
Daria Batukhtina, Slon.ruMy way of joking is to tell the truth.
I think there is nothing funnier than the truth in the world. Communicating with the authors of startups (both Russian and Western), I try to help them the main thing – to show what "venture life" really is. And it is often like this: spending other people's money, people sometimes do not understand their value, while being shy to take how much they need, or take when they are not needed at all. I managed to communicate with many venture investors at events in Vienna, Berlin, Amsterdam, Paris and London. Today I want to share the tips that I have heard during this time. I hope they will help someone to better navigate the world of venture investors and make the search for capital more efficient.
1. Don't show off: Listen to your investors
From the investor's point of view, an entrepreneur is a person who uses OPM (other people money) – "other people's money". He does not take risks on himself. He only spends his time. And, probably, that's why sometimes he is completely unaware of the value of money and does not think how to spend it effectively. Not the best approach. It is much more productive to listen to the opinion of your investors (if they, of course, have expertise in your field of business).
2. Don't be afraid to admit mistakes
Any startup wants to conquer the world. But the investor is well aware that this is not always possible, at least on the first attempt. Therefore, if your brilliant idea does not work, this is not a reason to stop (or at any cost to force the world to accept and recognize this genius, for example, by investing huge funds in advertising and marketing). Change the business model, try something new, adapt.
3. Ask for more
An investor will take an equivalent part of your business for $200,000, a million, and five million. Since he takes risks and does business on enthusiastic people like you… Ask for more. But only if you are able to explain WHAT this money will be used for and WHAT their return will be.
4. Check if you need money?
Entrepreneurs often do not understand that not every project needs venture capital investments. Especially if your business is connected with lifestyle – if it's a bakery, pizza delivery, auto repair shop, car rental. This is the case when credit money works. Here you are doing business on limited human consumption for a long time. And an investor is interested in startups of a different type – those that can bring a tenfold return on investment within a couple of years ... Remember that the motivation of an entrepreneur and an investor is different. You may want to conquer the world. And he is interested in the return of money on invested funds – that's what the investment business is primarily about.
5. Look for moves-exits
According to statistics, almost 85% of business plans do not reach the consideration of fund partners. Of the remaining 15% of the lucky ones, only a third is being seriously studied. How to get at least into these 15%? Communicate with those who are personally known by the partners of investment funds. For it is precisely this kind of contacts that lead to the result.
6. Study your investors
Before applying to the fund, analyze whether your startup is suitable for it. To do this, you should first make inquiries. So you can find out that the Ventech fund invests in Russia for the most part in e-commerce projects and preferably aimed at a female audience. It is important for RVC to participate in the transaction of several partners (investing at least 25% in the project). Accel Partners is looking for mobile development in Russia, but with proven and experienced teams. Runa Capital pays attention to know-how technologies that cannot be copied. Etc. Without this knowledge, you will spend a lot of time and effort in vain.
7. Do not despair after being rejected
Previously, venture investors counted on 45-60% ROI, today in Silicon Valley they are happy and 15-20%. The second Facebook is the dream of any investor, but there are few breakthrough projects. The profitability of venture funds is falling. And with it, trust in them. Therefore, do not be surprised, having calculated everything to the millimeter and still getting a negative answer… The investor may simply not have any money left in the fund.
And finally: read Pratt's Guide. Although this book was published almost 40 years ago, investors still recommend it. It helps to understand how the venture business works. If you are in the USA, it is easiest to read a book in the American library, otherwise it costs from $ 500 at retail.
Portal "Eternal youth" http://vechnayamolodost.ru02.10.2012