It seems the only way I can raise money is by convincing investors I don’t need it … the problem is that we do need an investment. How do I break the Catch 22?
Human psychology applies to all fields of endeavour – early stage investing is no different.
The fact is that investors (with few exceptions) are looking for ways of making money – not spending it!
It is incumbent on all entrepreneurs to show investors how they will make money…not why the entrepreneur needs it.
Consider the following question:
Which do you find more attractive – a company that is burning cash and needs an equity injection to survive? Or a business that is washing its face but needs an equity injection to exploit a well-researched market opportunity?
It’s not a trick!!
Perhaps overly simplistic, but one finds that most investment opportunities fall (to a greater or lesser extent) into these two camps.
Given the increased anxiety levels across the economy, investors need a very good reason to invest what’s left of their assets. Helping a company survive is generally not a good reason.
I was recently approached by a young engineering company with an innovative technology in the lighting sector. Preliminary testing of their prototype yielded very good results. The company wanted to raise money but was yet to establish any significant traction in their targeted segment of the supply chain.
Rather than immediately pitch investors, we determined that the best way to help the business was to engage with leaders in their supply chain to establish the strength of their technology and consequential value proposition. In the end, this sort of traction is far more important than securing a small round of capital.
Unfortunately this doesn’t help pay the bills today (welcome to the life of the technology entrepreneur) but if this activity yields positive results, a clearer pathway to revenue will be established and prospective investors will be excited by the opportunity rather than fearful of the liability.
With an established value proposition, one then needs to build competitive tension among prospective investors. Particularly strategic investors always wary of competitors getting the jump on them with the next breakthrough innovation. Turning the tables in this way is the entrepreneurial challenge. If you don’t know how to do this…your journey will be lonely.
Whatever the macro-economic conditions, there are always opportunities for great ideas/inventions to make money. In tough times you simply can’t rely on leaps of faith…you have to evidence your chosen path and so convince investors that the greater risk is to turn you down!
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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