Tying the Knot, Why Finding an Investor is Like Getting Married
In the same way shows like the “Bachelor” and “Bachelorette” glamourize the dating/marriage process, TV series like “Shark Tank” and Bravo’s “Start-ups Silicon Valley” have glamorized the investment process. These two opposite subjects — marriage and obtaining venture capital funding — are more alike than you think. I’ve spoken with several entrepreneurs and investors in order to better understand how the language of love has found a way into the startup world.
Most relationship experts will tell you that you should know and love yourself before expecting someone else to do the same. In the same way, entrepreneurs need to know, love, and believe in their startup before trying to get someone else on board.
“Finding outside investors has been super easy for me the past few years all because I have already proven the model,” said Peter Nguyen, CEO of Advertiser 360. “Most smart investors don’t want to see hypothetical pro form as with inflated numbers. They don’t want to hear ‘The industry is a multi-billion dollar industry, and if we only had 1 percent marketshare… .’ Prove your model and then use outside investors to fund it.”
You can’t fake your way in a relationship. Eventually, the other person always finds out your embarrassing habits. Be truthful and honest, and the investors will see how great you and your idea are.
Know What You Want In A Relationship
It’s difficult for a relationship to bloom if one person is looking for a serious commitment and the other is looking for a fling. The same is true with investors. Dan Kador, co-founder of Keen IO, said to know upfront what you want out of investors. Some people just need the money. Others want investors with connections and advice. Both are fine, but you should know what you’re looking for prior to getting into the relationship.
Knowing what you want in a relationship can also mean checking the references on some of your potential candidates. You ask your friends about the people they want to set you up with right? So why not do the same with investors. Believe me: this will be easier than trying to get the scoop on your new guy from his ex-girlfriends.
The Dating Phase
When you first starting dating someone they are on their best behavior. They’ll invite you to exceptional dinners, come up with fun date ideas, and will have thought about their outfit for days.
According to Matt Richter-Sand, founder of NX Fit, the dating phase of finding an investor is very similar. “The courtship phase is awesome,” Richeter-Sand said. “If investors like you, they’ll suck up, and tell you what you want to hear.” If a girl told you she loved you after the first date, you would run, right? Be careful not to bring on the first investor who calls you a genius.
Aaron Pitman, CEO of API Domain Investments, understood this and knew that he wanted an investor who was in the relationship for the long haul. Pitman asked his investors: “If you invest in me and we make you lots of money, will you reciprocate and involve me in your future projects you are investing in?” Asking this question during the courting phase with investors is equal to “do you want to have kids?” question that any man or woman would ask their partner before getting engaged or married. This is just part of the vetting process, and it’s having those tough conversations that make you more confident when popping the question.
The Engagement Period
So you’ve found the one. The investor (or spouse) you want to spend the rest of your life (or business) with. You got down on one knee and gave them the diamond ring (or term sheet) and they said yes! It would seem that it’s all easy street from here. Pradeep Elankumaran, founder of Kicksend, disagrees. He claims that a common misconception entrepreneurs have is that it’s a quick process once you get the ‘yes’ from an investor. There is a lot of work that goes on in-between the engagement party and that wonderful wedding day. The time you wait between getting an investor to say yes and the time the money actual hits your bank account can be weeks, or even months, depending on the due diligence involved. Entrepreneurs need to be willing to put in the work. Don’t start celebrating after a single handshake.
In a relationship the wedding day is a cause for celebration. The same is true with investors. The day that money finally hits the bank account and you are officially “funded” should be celebrated. Get out the champagne and brace yourself for a life-long commitment — through good times and bad. The celebration will stop soon enough, and you’ll have to get back to work.
Sanjay Sabnani, founder of CrowdGather.com, compared entrepreneurs starting a company to having a baby. The similarities are definitely there. You are tied to the company for life, you nurture it, and help it to grow. But at a certain point you have to let it go out into the world and succeed or fail on its own. Your investor should be like a great lamaze coach — providing guidance and helping you to bring your healthy startup into the world.
This article is published on December 14, 2012 on Forbes magazine and Peter Nguyen thoughts on finding an investor
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