When we think about the process of investing, we often focus on it from an entrepreneurial angle; as in the daily challenges an entrepreneur has to contend with in order to secure investment. What we tend not to focus on is how the process actually affects the investor; what they have to contend with and the struggles they go through.
So many people assume that being an investor is all about the travelling and fancy hotels; few really understand the often wearisome investment process that investors have to go through, or indeed the emotional and mental battles that many have to contend with.
So here’s a quick overview which will hopefully give you a better understanding of angel investors and in turn, perhaps give you a better chance at securing your next investment deal.
Understanding the challenges of identifying a good deal
Being an investor is not all about waiting for the right deals to come to you. Oh no! Investors must be willing to actively seek out their investments, which can be an extremely exhausting, time-consuming and frustrating process!
Investors can go for over a year without as much as a sniff of a good deal and then happen to come across two in less than a month! There is just no set process and it takes a lot of hard work to stay driven and motivated.
As an entrepreneur it is therefore important for you to be able to identify where in this deal hunting process an investor is and how they are currently feeling. It’s a good idea to actively seek out information about when they did their last deal and who with. It’s also important to find out where they did their last deal.
Finding out when, who and where will help you understand the investor and give you valuable insight into how likely they are to be receptive to you as an entrepreneur, as well as your business idea.
Understanding the decision making process
It should come as no surprise that making a decision is not always the easiest for an investor. After all there is so much to consider, especially as far as risk goes. An investor needs to make sure they are 100% convinced about the venture and thus justify the monetary investment.
An investor also needs to spend some time learning about the entrepreneur and the team running the venture – this will have a great deal of influence over the decision making process and can be very daunting for an investor. After all, you never really know how people work until you work with them and by then it is often too late!
From an entrepreneur’s side of the table it is essential that you know where the investor you are dealing with sits in the decision making process. If you are dealing with a single investor then it is pretty clear, however, if you are dealing with a firm, it can be a bit trickier because their processes can be somewhat obscure!
Never be afraid to ask the question about who is going to be making the final decision on investment and if you struggle to get a direct answer from the firm, try and identify other entrepreneurs who have been through the same process with that specific firm.
Try to make the decision making process as straightforward for the investor as possible; show them in as much detail and in as engaging a way as possible why you are the person to invest in!
Don’t be disheartened by ‘It’s a no from me’
You need to get used to hearing the word ‘no’. Try not to ever take it to heart, sometimes it is just as hard for the investor to say it as it is for you to hear it. You may not believe that but it’s true. Investors have to say ‘no’ to lots of people, dashing many entrepreneurs’ dreams in the process and that is not a nice thing to have to do.
So many people think investors are cold and heartless but perhaps hardened is a fairer word. Investors are in it to make money after all, they cannot give away money to everyone they like, let alone every idea they feel may have potential. Some ideas just have not been thought through properly and therefore carry too much risk for an investor.
Rejection is never nice but failure can be even worse. Try therefore to understand why an investor might be turning you down (this time). Take on board their comments, advice and expertise and go away to make your idea (or business) better and then next time you might get a yes!
Always work together towards a common goal
One of the biggest factors influencing an investor’s decision is whether or not they feel the entrepreneur (and team) will be able to work well with them (the investor). All investors will want to contribute in some fashion but if they feel they will be ignored or left out of the process, they will be put off from investing.
A good investor should always be able to support the entrepreneurs they choose to invest in with their relevant experience; if they feel they can’t use their expertise to help or that their experience and advice will be unappreciated, they will not want to invest.
As the entrepreneur, you should make sure you think of investors as part of the team and as make sure you treat them accordingly. However, don’t forget investors will differ from one another in terms of how they wish to be treated and how much involvement they have. It is best to try to identify how an investor might wish to be treated in your initial discussions and make sure you make relevant references to ensure they’re fully engaged.
Finally, don’t believe everything you hear
The investment world is full of rumours, some more exciting than others! However, the same rule that we were always told at school applies, ‘don’t believe everything you hear!’ So many rumours about investors do the rounds that you often don’t even recognise a single element of truth when they get back round to the start again.
Rumours will always exist, however, how you, the entrepreneur deals with them can affect your chances of securing investment. The best thing to do is simply not judge any angel investor by what you hear in circulation. Instead of listening to what other people are saying, try to get it from the horse’s mouth. Make sure you do your homework and don’t be afraid of approaching other entrepreneurs who can give you a first-hand report.
Investors can get a raw deal at times and often face criticism, however, understanding the psychology behind the often difficult, challenging role of a venture capitalist can really help you when it comes to seeking out investment.