How to attract startup investment. Part 1

Original author: Paul Graham
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Attracting investment can be compared, on the one hand, with the lifting of a heavy load and, on the other hand, with a puzzle. The larger the amount, the harder it is to convince investors to invest in the project. Most startups do not have enough experience in attracting investments and do not see the big picture. They are forced to act blindly, gradually revealing a hidden connection between disparate pieces of information.

So, the behavior of investors sometimes seems incomprehensible and unpredictable to them. Meanwhile, investors themselves often make not always logical choices, guided not only by positive motivation, but also negative motivation. This is the fear of the unknown: the fear of investing in a failed startup or not making an investment in a project that then suddenly takes off.

It turns out that startups have two options: trust their intuition and take the advice of more experienced people. Under the cut, we gathered some tips that are tested on real experience.

Money is not happiness.

At every step we are told about how much money has been invested in a particular startup so that it becomes successful. But do not you think that here the cause and effect are reversed? Rapid growth is what makes a poor company a successful startup.
Of course, there are situations when money plays a decisive role, but you should not blindly believe in their omnipotence. Therefore, there is no direct causal relationship.

Do not try to sit on two chairs

Not all startups think about how much the search for investments can distract them from directly working on the project. There is a period for searching for funds, and a period for work. If at a critical moment when it is necessary to make, for example, a crucial technological decision, the project management scours in search of amounts with a large number of zeros, then a startup itself can turn into a complete zero without waiting for either the owner or the money.

Therefore, set aside time for yourself when you are in fundraising mode and when in operating mode.
If investors throw letters at you and invite you to meetings when you are in working mode, refuse, postpone communication to a later date. Do not succumb to provocations, because everything can end at the stage of negotiations, and time will be lost. However, nothing prevents in parallel accepting an investment from a trustworthy investor who offers to transfer money without too much discussion. No one canceled common sense.

Make new contacts on the recommendation

There are investors who do not accept that startups get to know them directly. Therefore, do not reassure yourself and hope for contact if you send someone an email to acquire new connections. It is possible that they will not answer you. In this case, it is very important that you can be represented and recommended through mutual acquaintances.

The most successful option when you are represented by a well-known investor who has worked with you. In addition, it may be other people known in the startup community: lawyers, analysts, observers.
There are also special sites through which you can be presented to investors, for example, AngelList, FundersClub, and WeFunder.

Consider being told no until you hear yes

Many investors hesitate for a long time for one reason or another. They can speak in hints, abstract phrases that will sound encouraging. But this is only at first glance. After a while, they can suddenly refuse you.
Another common trick is to stop responding to emails. They are not ready to give an answer now, and moreover, they just keep you in reserve. But if something changes for them, they will unexpectedly answer you, explaining everything by the fact that they were very busy.
This behavior can be explained by the fact that at any moment the situation in the markets can change, which certainly affects the decision of investors.
The only way to play it safe at the final stage of negotiations is to ask for written confirmation that the investor agrees to the transaction.

Consider options in parallel, but in accordance with their value.

Negotiate with several investors at once. This saves time and allows you to realize that these several options may have unequal value. Do not go in cycles in any one option. Think about how each of these investors can make a contribution to your project, and accordingly distribute your efforts in working with them.

If this is a large investor who can invest a lot, but drags out negotiations, then its value is not the highest. There is also the opposite option - a business angel who will give a little, but in the very near future. And if this business angel still fluctuates, then its value will fall even lower.

Do not hide the fact that you are negotiating in parallel. Let the investor understand that he is not your lifeline, but just a potential partner - one of many.

Find out where you are and where you are led. The

investor at the meeting can say a lot, but not say the most important thing: what is his plan.
Therefore, never miss an opportunity to ask the investor important questions when meeting:

• What else is needed to make a final decision?
• Do I need another meeting?
• What exactly will we talk about on it?
• How soon will it take place?
• Do they need to discuss all this with partners?
• Maybe they have some problems?

In order not to seem too meticulous, ask questions under the guise of an inexperienced person who just wants to understand the situation. But if you see that they answer you reluctantly and evasively, it means that the investor is not yet particularly interested in cooperating with you.

Spare no effort on your first deal.

An important factor for many investors is the opinion of other investors about your project. If at least one investor invested money in it, then a credit of trust from the subsequent ones will be provided to you.
Of course, the first deal is the hardest to conclude. But the sooner you achieve this, the easier it will be for you in the future. Therefore, do not spare your strength. It's worth it.

Avoid investors who don’t want to be “first”

Sometimes it seems that some investors are more interested in not your project, not your business plan, but how interesting you are to other investors. When you start digging deeper, it turns out that they simply do not want to be “first”. It happens that they directly say that they can change their minds if they see that other investors have already invested at least a certain amount in your project. And if you don’t have any major investments yet, then cooperation with these “modest” investors has no prospects.

Make several options for a business plan

Why do you think many investors sometimes ask how much money do you plan to attract? After all, this is almost impossible to plan - the market situation is constantly changing.

To understand this, temporarily move to a regular store. A seller will come up to you and ask: “How much do you plan to spend?” If you go for a gift to a friend, then you do not know exactly how much you plan to spend. Of course, it is better if the gift is inexpensive, not more expensive than such and such an amount. Based on this, the seller will pick you something.

So are the investors. They are just trying to determine if they can pull you.
Therefore, if you have a plan for any occasion, then you can answer the question of investors by simply offering them several options for the development of events and your expected reaction to them.

But often the opposite problem arises - to present to the investor only the plan that is suitable specifically for his level. For example, to representatives of a venture capital fund you will state your most “expensive” plan. A business angel - a more modest plan.

The best is the enemy of the good.

Whatever your plans, they should not be too bold.
For example, you would like to raise $ 500,000. This is ideal. However, you are voicing the amount of $ 250,000 to investors. And if it happens that you collect only $ 150,000, this will be a good and realistic result. But only in comparison with the declared $ 250,000. If you declared the amount you originally wanted, this could not have the best effect on your reputation.

Start small, and under favorable circumstances, you can always attract new investments, as you will impress a cautious person and demonstrate the positive dynamics of the development of your project.

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