Chapter 5 - Investor Management
IN THIS LESSON
Explaining Your Product to Investors in a Way They Can Understand
When you are excited about your product or service, you want to tell people about how it works, what makes it so cool and get into the nuts and bolts of the technology, especially if you are an engineer or have a technical background.
By going through the development process of your product offering, it orients you to want to talk at length about the ingenuity that went into the product development. It’s so easy to fall into overly explaining things about your product or subscription service. However, you need to stop and check yourself: do investors care?
Remember that venture capital investors are not high-level technical experts. If you over-explain the nuts and bolts of the technology, you will probably lose the VCs in a sea of jargon and techie terms that mean nothing to the VCs. It’s like shooting yourself in the foot.
What do Investors Actually Care About?
Investors care about:
• whether there is a defined need in the market
• whether your product or service can meet that need (your value proposition)
• whether the market is growing and in such a state that would enable you to grow
• whether your company can make money for anyone who invests in your company
You may think, “But if they only know more about the fancy new programming language I created,” or “I can wow them with my new technical design features that are so cool. I need to tell the investors the details to show them how smart I am about technology.” This line of thinking can work against you when you are fundraising with professional investors. What matters is the end-result you are trying to sell.
How to Tell Your Story
Let’s say that a company developed a fancy new programming language. Rather than focusing on the technical specifications, the following is a better way to tell the story. You can apply this structure to your own company:
• My company’s new programming language [insert your own product innovation] enables me to do X, and nothing else in the market, which is a $10 billion market and growing by 10 percent year over year [replace with your own numbers for your market], can do X
• X is superior to Y, which is already successful in the marketplace
• Y makes $5 billion a year [replace with real number for your competition], and X can take that $5 billion and bring more people into the market, who are currently using substitute Z because Y is too complicated, too expensive and an inferior offering
Even if you are an engineer by training, you can still communicate in this structured way. Keep it simple. It may take a little self-discipline, but it’s well worth it. Your story will resonate better with potential investors.
How to Actually Talk to Investors
Talking to investors the right way is challenging, especially when investors give you vague, wishy-washy, non-committal responses. You can have a conversation with an investor, and you’ll feel that the tone of the conversation was fine and relatively positive, but then after the meeting, you are left with a sense of things not being clear about what the investor really thinks or feels.
There is a way to talk to investors, as if you are chatting up a stranger you meet at a networking event to pick their brain to find out how they think, and then there is a way to talk to investors. The following tips will help you improve how to talk to investors in ways that will result in more productive conversations.
1. When you hear an investor say something semi-positive or vague, or seems interested but takes no action, do this radical thing – ask why
If an investor says you have “an interesting approach” and it sort of feels like a potential brush-off, immediately ask, “Why do you find it interesting? What is interesting about it? Can you please be specific?”
If an investor says they are not sure about what you are saying but want to run it by their partners, ask, “Why do you feel that this is not the time to act and invest in my company? What is preventing you from investing?”
If something is not clear, ask for clarification. Probe until you feel like you have gotten the most genuine answer possible.
Investors may be a bit surprised by your candour, but your candour will be respected – and they’ll likely remember you because you invited them to tell the truth, and you did not get offended or upset when they told you their version of the truth. Invite feedback. Be open to it.
2. Tell investors exactly why their money is significant
It is important for you to explain to investors where you are in your development cycle. Be clear how you would use their money to advance your business. You will want to explain clearly how you would use their money. You cannot just say, “I need money to keep running my business.”
Storytelling comes into play. It is better if you can articulate a story of the progress, you have made and why you need their money to do something important on your path to growth and profitability.
3. Talk about how your product addresses a specific market need uniquely
Rather than talking about how big the market is and how you will grab a slice of the market, it is more effective to focus on talking about how your product (or service) addresses a very specific need in the market.
Then you should focus on what differentiates your solution in the market. What makes your product or service unique?
However, never say, “No one else is doing this.” You will likely lose credibility if you say it because there is always competition, even if it is indirect competition. You don’t know if the investor has been talking to another company that would be your competition. You would look like you don’t know the market.
4. Be concise, clear, and engaging when you speak to investors.
It takes hard work and preparation to be concise and clear. Preparation really is key.
The classic American writer Mark Twain once apologized to a friend, “I am sorry that I wrote you a long letter. I did not have the time to write you a short letter.” The point is that it takes time to get your messaging tight, clear, and concise. Don’t put yourself in the position to have to apologize to an investor for splurging at the mouth. You’ll likely lose the deal.
Investors want to know that you have a plan, believe in the plan and are passionate about the plan. You should always have your three key messages in your back pocket. How will what you are doing grow and make the investors’ money in the long term?
Telling stories that are relevant can increase engagement but keep the storytelling short (even as short as 30 seconds) to make your point.
Using these tips doesn’t mean that you will automatically “win” with every investor. There can be other reasons why an investor doesn’t want to invest in your company, but if you apply these tips consistently, you will have more productive meetings with investors.