Are you tired of hearing “you’ll never get funding”?

I hear a lot of negative things about money drying up in the private equity, venture capital and now the angel community. There is still money around so long as the business is not perceived to be “too risky”. Entrepreneurs and business owners can do some pretty simple things to reduce risk and still be positive about the rewards. Is anyone else tired of hearing “you’ll never get funding”? What have you done to convince investors they are not just throwing their money away?

The premise of your question is a reasonable synopsis. We can debate what “too risky” means and, in reality, this typically boils down to the perception of the investor.

Nevertheless, the central point to keep in mind when pitching to an investor is that the investor (be it an angel, VC or otherwise) is not there to “give you a go”. As with any investment proposition, the primary judgement metric is: “will this investment make me money?”

Firstly, you need to understand what drives the investor with whom you’re dealing with.

Are they passive? Do they expect you to deliver them a healthy profit after three to five years with little, if any, involvement on their part?

Are they active? Do they want a hands-on role in building the business? Do they simply want a Board position and mentoring role? Do they have specific skills or networks that will assist in business development? How much time do they want to invest in addition to the money?

In what timeframe do they want/need to exit the investment? What other companies have they backed? Are they complementary or competitive?

Knowing the answers to these questions will help you understand the investor’s motivations and so will enable a tailoring of the pitch to their needs.

In my latest start-up, the investors had a desire to enter the energy efficiency space but were uncertain of the right strategy and business model. They were prepared to invest over an 18 month to two year period but wanted self-sustaining operations to follow. Two investors were not really active and the other two were keen to play an active role. All saw the investment as strategic and were not looking to exit the business inside three years.

The key to convincing the investors was the development of a value proposition that could be demonstrated to gain traction with the target market. This was not so simple as it was not immediately clear which target market should be pursued – medium sized commercial clients, large industrial clients, etc…

After several months, it turned out that our initial thoughts were not right and that the delivery model we had in mind was better suited to a different target market. In the end the investors were convinced that we had the right model, focus and skill sets to deliver a profitable business in the desired space.

Now the tricky bit…

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Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology-based businesses.

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