Investors must make sure that you are a real miracle

Recently, TechCrunch wrote about various theories of venture capital. In the article, the author claimed that the “unicorn” is the analogue of a good investment , and the “dragon” is even better .

I remember various fantastic terms that describe good investment opportunities, but they are best described in a fantasy style.

Being maximalists, venture capitalists do not just believe in miracles, but are sure that good investments live in a world different from everyday reality. When I read the article on “unicorns” and “dragons,” I realized that investors would certainly want proof, your miracles.

Realizing this, many entrepreneurs are obsessed with creating a pitch presentation, considering the receipt of investment nothing more than a fairy tale. In reality, this is not so. Experienced investors are always looking for evidence of consolidating their entrepreneurial fantasies in our market reality.

When investors see the positive validation of the startup model and the positive dynamics demonstrated by a young company that neglects all the criteria, then they turn from skeptics to schoolchildren in the clouds.

The biggest disappointment associated with most of the “presentations for the elevator” is not in the presentation, but in the erroneous presentation of data that allows you to understand the foundation of the business, with the hope that the investor himself will fantasize as he needs it. Nothing of the kind, does not fantasize, do not expect. Entrepreneurs need to understand that with investments, legs grow out of an agreement to realize the joint fantasies of an entrepreneur and investor.

In accordance with the classics of the fantasy genre, let us single out investor interest zones.

Hero team

Tim Draper (Tim Draper) calls its incubator and entrepreneurial dormitory - City of Heroes . Analyzing the team, investors pay attention to conscious integrity, integrity, responsible attitude, ingenuity, resourcefulness and scale order. When we hear the history of the company, we want to hear a story that connects the founders with market opportunities and gives them a competitive advantage.

When we look at the team’s slides, we want each talent and skill necessary for the development of the company to be briefly presented. When we hear the founders come together, we want to see the connection, brotherly feelings and common goals that will allow the team to go through fire and water. We are looking for a special forces mentality where every member of the team tries to bring as much benefit as possible in any uncertain environment. When we hear the history of the company, we want to see excellence in operating with extremely limited resources.

When we hear how the company invested, we want to hear what the order of investment will be after the leaders have found a way to test demand, consumer behavior and economic growth models.

Mysterious Truth Innovation

As investors, we like companies that are based on market ideas that very few people know or can know. And, as Peter Thiel emphasizes, it is better if this knowledge is also somewhat contradictory - which will give the company time to create favorable conditions while others are aware of it.

A unique life experience, field of study or specialization can provide a solid foundation. I look at what I call "market empathy", which implies the ability to understand the client, his behavior and his needs. I believe that deep empathy is the source of most unique ideas. We also often prefer investments when we believe that we see favorable opportunities better than other investors; in this way, we can better assess or help the team more effectively.

"Beanstalk"

Some companies may simply grow faster than others, even with similar products and positioning. Sometimes by several orders of magnitude. Investors are trying to understand the way out and the barriers to entering the market and the benefits of acquiring a client.

Some companies have a well-defined market strategy that is more effective in acquiring and gaining customers. Some teams purposefully create such strategies, but most find them by accident. Many of them are not even aware of their achievement. Investors, as a rule, identify such “bean stems” much earlier , because they have already met with similar teams.

One day the team will come to understand their achievement and will simply grow even faster. The main difficulty in detecting "bean stems" is that they cannot be seen from afar, like their fairy-tale prototype. When an investor sees a “beanstalk,” he tries to invest immediately before anyone else recognizes it.

Alchemy

The best investment opportunities seem to be so huge that they seem like completely undeserved, almost magical act of creating wealth. All revenue models, pricing and profit strategies are not created equal. In Silicon Valley, investing in Internet companies often means betting on a "beanstalk" without a clear revenue model.

There are rare companies that seem to have already found the magic cash printer. I call them alchemists. Alchemists are very useful because the company itself can finance its own growth, and as an early investor you are less likely to suffer from a dilution of the company's capital.

"Kings" of a part or whole

Profit in the markets is always unevenly distributed, such are the laws of market capture. A leader usually serves 40 to 70% of the market, the next half of the leader’s share, the third half of the second, and so on to niche companies serving the long tail of this distribution. Thus, the critical point of investment decisions will predict whether a poorly organized, lean startup can become a “king”.

Fortune telling

Many large companies and the market changes that they embody seem historic inevitability. Not only do investors want to find a "king", they need the foresight of a company that will become large and significant in a part of the market, which is destined to become a huge part of a monstrously large market.

Investors spend a lot of time thinking, hypothesizing, prophesying, speculating, and sometimes even researching the future of markets. As a rule, they make sense when the doors of destinies and the fact that these fates connect are similar.

Unicorns

Aileen Lee of Cowboy Ventures believes that the term “unicorn” can only describe 0.07% of venture capital companies that have managed to earn billions of dollars. Most of the profits in the industry come from several high-performing companies that have been able to become market leaders with great market opportunities. However, most companies will not be able to become so.

Investors must be sure that a company showing excellent growth can achieve a billion dollar valuation. Such companies are extremely rare and venture capitalists are in their constant search, so the "unicorn" is perhaps a really relevant mythical animal describing such companies.

"The Dragon"

John Backus of NAV.VC, in his article “unicorns” vs “dragons,” defines “dragons” as investments that can reduce the interaction of investors with a company to a limited partnership. From his point of view, now all investors are searching for “unicorns”. By investing small amounts in highly valued companies, they lose sight of the fund’s top priority: earning supermarket profits from limited partnerships.

Companies always try to formulate their pitch presentations in such a way as to evoke fantastic images in the minds of investors, but the insight of investors will always tell them the truth. You can never become an investor tale if you really are not. You should immediately build a company, like a fairy tale for investors.

It is very ironic that the founders forget to collect and present evidence. They do not lend themselves to standard valuation methods. Attracting capital is not a fairy tale; it is only a matter of proving the viability of your company as an investor dream.