Getting Investors For Your Start-Up

At its heart, a startup investment is an investment in the entrepreneur. And the earlier stage the investment, the more so this is true.So how does an entrepreneur, just starting out, with little or no track record gain the credibility necessary to attract capital ? They gain credibility in two ways — they borrow it and they demonstrate it.

Borrowed credibility runs on the same principle as guilt by association. If entrepreneurs surround themselves with people who have credibility, they gain credibility themselves. In the business world, reputations are paramount. As a result, when well-respected individuals vouch for an up-and-comer, it is meaningful. There are lots of ways someone can vouch for you as an entrepreneur.(1) They can provide services to your company (awesome lawyers, accountants, recruiters, etc. are in great demand — if they work with your company it means they were willing to bet on your success). They can lend their name to the company as an official advisor (ideally you will be able to clearly explain how they are working with your company other than merely lending you their name).(2) They can invest in the company (if industry experts or startup/product/marketing gurus invest in your company, it is a huge vote of confidence in what you are doing).(3) They can go on your board (business leaders have no more valuable resource than their time, so if they go on your board it is a huge recommendation of you and your company).(4)When it comes to borrowed credibility, there is perhaps no more important act than the initial introduction you are given to an investor. If you have no track record and you cold call an investor, you have huge reputational obstacles to overcome. This is particularly true because many investors will assume that you were either unable to find someone to make the introduction or are too naive to realize the importance of an introduction. Either way, your likely success as an entrepreneur will be sharply discounted. On the other hand, if you are introduced to an investor by someone he or she trusts and respects, you are well on your way to a trusted relationship yourself.

The other way first time entrepreneurs gain credibility is to earn it.The best way to earn credibility with investors is to be really smart and well informed about the business you are pursuing and to have good answers to the questions you are asked. Investors want to invest in people who know more about their business than they do. They want to be excited about what you’re doing and get more excited as you thoughtfully answer questions about your business. This doesn’t mean that you need to have all the answers. You don’t. You just need to be thoughtful when you don’t and explain (1) how you intend to get the answer,(2) what you predict the answer to be, based upon what you do know, and (3) how you expect to gain the answer over time. Domain experts are best positioned to answer questions about a domain specific business. But being a domain expert does not require direct experience in a particular business. It may be sufficient to borrow the knowledge of those who have worked in the industry. In fact, oftentimes the most interesting ideas come from people who are not mired in traditional ways of thinking about an industry but know everything there is to know about how things are done today.

Credibility also comes from doing what you say you are going to do. Sometimes that means following up on a question from a meeting (If you say you’ll get back to an investor with an answer and you do so promptly, you’ll gain credibility; if you don’t, you are done). Sometimes that means hitting numbers you say you will, or closing on a customer you expect you will.There’s nothing better than an entrepreneur who delivers the goods.

If one of these techniques for garnering credibility is good, all of them together are great. Get introduced to an investor by someone he or she trusts. Build an advisory board and board of directors of industry experts and admired professionals. Do your homework — know everything there is to know about the market you are pursuing. Welcome questions about your business — answer them well when you know the answer and admit when you don’t. And always do what you say you are going to do — whether that is delivering promised followup materials or hitting your numbers. In combination, these techniques can give any entrepreneur, no matter how young and/or inexperienced, the credibility necessary to attract great investors.