Guest author John Fearon is CEO of Dropmyemail.com, which backs up emails in the cloud.
If you have a startup, ignore the business plan, financial projections, valuations and statistics for now.
Instead, look at yourself.
Would investors spend $1 million to have coffee, much less champagne, with you?
Let’s face it. The entrepreneurial path is a lonely, hardscrabble one that often ends in failure. Statistic Brain estimates that half of all startups fail by the fourth year. So, it pays to understand what savvy investors are thinking when you put your hand out.
It's All About You
There are exceptions, but among the investors who can do you the most good, money is flowing to the people behind startups, not so much to the idea behind them.
Being the person that investors believe in is the surest way to secure seed funding.
As the movie “The Social Network” and Facebook’s About Us page attest, Mark Zuckerberg got his initial capital from his then-best friend, Eduardo Saverin to start Facebook. At that point, Saverin may have believed in the business but he certainly believed in Zuckerberg.
Even venture capitalists look past PowerPoint presentations and spreadsheets to see the “people equity.” Felix Salmon, a financial blogger at Reuters, explains it this way in his post Buying Equity in People:
“Venture capitalists are increasingly investing in a startup’s management team rather than in its business model or underlying idea. Find the entrepreneur and invest in the individual directly, thereby guaranteeing that you’ll have a stake in their success if and when they finally hit it rich on their fifth or sixth attempt.”
To make a mark, startups usually have to raise up to $1 million in the seed round. This benchmark may vary from business to business, particularly if an idea involves a physical product.
Investing In The Entrepreneur, Not The Idea
The initial sums raised are usually invested in the entrepreneur, not the business. And with six zeros in the bank, there is sufficient cash to scale up (hiring of new staff, improving equipment, purchasing of advertising, etc).
The charm offensive doesn’t end then, either. Once funding is in hand, a founder has to inspire all the other people that he or she needs in order to make the idea real. To get through the thin to reach the thick, entrepreneurs have to be the rock to which friends, family, staff and investors alike hold onto.
Is this you? Great! If not, you need to find a magnetic personality to help you do the convincing.
Most entrepreneurs start the same way, borrowing money and looking for investments at every turn. Successful would-be magnates don’t depend on their idea so much as on their ability sell people on their idea.
A subtle distinction, indeed, but an increasingly important one.
Image courtesy of Shutterstock.