Photo by: Oleksandr Demchenko
Thanks to DreamIt Ventures, I've recently been submerged in the funding world. I've met and am working with entrepreneurs getting their product or service in a state where they can approach investors for funding. In addition, I've been interacting with entrepreneurs engrossed in the funding circuit who are physically shaking hands with angels and VCs every other day. DreamIt has also allowed me to gain insight into what investors look for. In fact, for our first Tuesday night Speaker Series, we had a great Q&A session with three different investors at once. Of course, we couldn't pass up the opportunity to ask them some questions. Here are some of the highlights:
- One investor (and a co-founder of DreamIT) admitted he can tell within the first 45 SECONDS whether or not he will invest in a company. 45 SECONDS! When we challenged him on his answer, he admitted he's gone back on his first instinct but generally has a good idea on whether or not he believes in the team or product/service within that timeframe.
- Another prominent local Philadelphia investor and entrepreneur gave us a formula he uses when evaluating a company's pitch. He looks for the 5 M's:
- Management: How experienced, open, and smart is the management team? How knowledgeable are they about their product/service and their market?
- Market: Is there a need in the marketplace? How big is the market?
- Model: What's the business model look like? Is it viable?
- Momentum: What progress have they achieved? What's their trajectory path?
- Moat: What are their barriers to entry? How well do they hold up?
- Out of these five 5 M's, we asked each of these investors which they perceive as the most important traits. They consensually agreed they were market and management.
- When dealing with early stage tech and internet startups, all have agreed that they expect your business model to change at least once. For that reason, they look for entrepreneurs who are open, flexible, and can adapt to the market. (Take our Openness Quiz to see how open you are)
- The biggest irritants for investors:
- Entrepreneurs who think they know it all or are overconfident
- Entrepreneurs who do not know their market and/or industry
- It's okay to say "I don't know" during an investor presentation. In fact, the investor(s) you're pitching to prefer it to a long winded round and about answer. Even better - discuss how the question they brought up would effect your business in another manner. For example, "I wonder how that would impact X..." This shows the investors you're honest and open-minded.
- Investors are more willing to listen to you or follow up if they receive an introduction from someone they know. Use LinkedIn or attend networking events to open these doors.
- First impressions are extremely important to investors. Ask good questions. DON'T approach investors with a half-baked idea. They'll feel like you wasted their valuable time and will not take your future calls.
Make sure to keep these tidbits in mind as you get ready for funding. How well can you answer the 5 M's above?
By: Yasmine Mustafa
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