How to sell to investors: Don’t sell to investors

0615H15BlogJB2You have a great idea, you have a team that can build it, and you have the passion necessary to see it through to completion. The next step is to get some funding and start banging away at it, right? Sure, if you want to lose control of your idea and your company.

I got the chance to sit in on a fantastic panel of business experts on Wednesday and hear Lyle Worthington pick the brains of Dave Berkus, Prakash Shukla, Edward St. Onge and Ron Tarro. The discussion was well moderated and led to some great answers and insights that had more than a few of us in the audience scratching out notes. The most important takeaway was confirmed and repeated in their own way by everyone on the stage: Do everything you can to avoid investment money.

Why do investors give you money in the first place? They’re not professionally known for being disorganized spendthrifts, they’re known for making a lot of money from smart plans that pay off. They’re in it to make money by having you make it for them. So instead of starting with a checklist of things investors are hoping to see when you approach them, I’m going to start with a list of things you should do instead of looking for funding:

Do everything yourself, whenever possible. Rather than letting some other company make a profit off of your “we’d rather not bother” tasks, you’re spending only what is necessary to complete them.

Your best source of money are paying customers. Nothing can beat the funding and market validation of customers giving you money for a product they want.

Spread out your income. Having all of your company’s earning from a small number (or even one) of large customers is assuming a risk. How far will you compromise to keep them from taking a better offer?

Stay nimble. Your competition develops a killer feature you hadn’t planned for, team members move on to other projects and industries, and new technologies change consumer behavior.

The more of these points you can hit, the more attractive you will be to an investor. Each one helps shift the conversation from “Can I have some money?” to “Can we give you this money?”. But eventually most companies look for funding somewhere. When that does happen, you should probably do the following (directly from the horses’ mouths):

– Know the size of your potential market.

– Know the answer to “When will it make money?”

– Know what you’re worth. Each of the points above improves your value.

– Pay attention to investors’ time-frames. They are responsible to their own investors.

– Make sure you are actually permitted to spend the money you’re being given.

– Lawyer up. The value of experienced legal representation cannot be overstated.

The pervasive idea throughout the entire discussion was that you should never aim to please investors. Your company should be successful on its own terms, with its own team, on its own timeline. Investors just speed up that timeline.

Joshua BakerJosh Baker is the Product Development Director of HandHeld Hospitality, a hospitality software company leading the way with innovative guest engagement solutions at an affordable price. His experience with big data, ubiquitous computing, usability design, and agile management provide a unique voice and vision to HandHeld’s product line.

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