By Martin Soorjoo
As part of our ongoing series examining the ecosystem necessary to bring technology to market, we asked investment coach Martin Soorjoo to share his thoughts on how startups can overcome the challenges of securing early-stage financing. This is the first of his commentaries and we welcome your comments.
This is the true story of “Ryan” (not his real name), a serial entrepreneur with no qualifications and a very limited understanding of financials or launching a startup. Ryan, however, is an entrepreneur with a deep understanding of people, who consistently and easily raises hundreds of thousands of dollars from savvy, experienced investors.
I first came across Ryan six years ago when he approached me to help him create some pitch materials. He explained that he had persuaded two investors (both bankers) to invest $500,000 in his IDEA (no prototype, company or team) but that one of the investors had asked to see details of his business model and financial projections.
Initially, I was sceptical as to whether the potential investors had, in fact, actually committed or had simply expressed an interest in learning more about Ryan’s idea.
Sensing my scepticism, Ryan called one of the bankers on his cell phone, explained that I was helping him put together the information that had been requested and asked the banker to confirm for me that he was investing. Sure enough, banker X confirmed that both he and banker Y were investing but would appreciate understanding a bit more detail. About a month later, Ryan received the investment.
Over the next two years I helped Ryan raise nearly $2 million, though it’s fair to say that my role seemed limited and that all I was doing was effectively confirming, in writing, deals that Ryan had already successfully pitched and negotiated.
Over time, through observation and discussion, I came to understand that although Ryan is a very disorganized, creative entrepreneur, he does use a highly effective “system” for securing investors. This is how Ryan does it:
1) Research. Ryan goes out of his way to identify potential angel investors. Typically these are people who have some capital and are involved in business or finance. Ryan’s research method is real world as opposed to virtual. He is a “social butterfly,” continually making new connections and expressing a deep interest in these people and their friends.
Slowly but surely, Ryan builds up a picture of those people who are likely to be potential investors.
2) Target Early. Once Ryan identifies his prey (potential investors), he puts himself into situations where he will meet them. This can be anything from the opening of an art gallery to a mutual acquaintances party. Ryan is very determined and resourceful and always finds a way to cross the path of his targets.
Ryan doesn’t wait until he is desperate for funding. He describes himself as being in “perpetual funding mode.” By lining investors up in advance, he effectively ensures that he is able to access investment as and when he needs it.
3) Seduce. Applying the same principles that most of us use to persuade someone to come on a date, Ryan presents his best side to his target. In addition to being upbeat, witty and charming, Ryan expresses deep interest in the potential investor. He makes the encounter about them and makes every effort to ensure they enjoy the experience of meeting him. Far better than pitching an investor at a urinal!
Though Ryan has the same worries and stresses that every entrepreneur does, he never reveals these to his target. He also never talks about his latest venture unless specifically asked. Social protocol means that he is always asked about what he does.
4) Convey Success. Ryan is a master at making dry toast sound mouth- watering. When asked by his targets what he does, he always makes it sound as though he is already successful. While being careful never to mislead, Ryan focuses on the positive and any successes that he has already achieved as well as others who are interested in his venture. Even when talking of potential challenges, Ryan focuses on the solutions.
5) Engage. Having already worked out what makes his potential investor tick, Ryan focuses on those points that are most likely to appeal to them. He always asks for their opinion and lets them know he values it. Importantly, however, Ryan never mentions that he is looking for investment unless pressed by his target.
6) Enchant. In his latest book, Enchantment, Guy Kawasaki discusses the importance of enchantment to business success. Ryan understands this principle well and makes his “investor encounters” magical, mesmerizing experiences, using the power of story and likeability, while focusing on how his venture will make a difference to the lives of others. If you want to enchant others, I strongly recommend you read Guy’s book.
7) Hook and Leave. Though somewhat counterintuitive, Ryan usually leaves the encounter at the point he is certain his target’s interest is at its high point. This seems to be a variation on playing hard to get, which tends to have the desired effect with the target making contact a few days later with a request that Ryan let them invest.
Ryan’s way may not be for every entrepreneur, but Ryan has proven time and time again that it works, even in today’s tough economic climate. Many of the techniques and strategies Ryan’s uses are the very same advocated by angels and VCs in their blog posts and elsewhere.
At the end of the day, Ryan is focusing on building relationships. People and relationships are the most critical factors in investment. This is why investors consistently say that the team is the most important factor in a deal. It is also why when talking about an investment, investors will often start out by saying that the founder is a great person with lots of integrity.
Even if you do half of what Ryan does, your path to getting funded will be much smoother.
Before founding The Investor Pitch Clinic, Martin Soorjoo was a high flying, award winning attorney for over 15 years. Martin has worked in and with startups, as well as on projects with a number of investors, including investment bankers, venture capitalists and angel investors. During this period he raised several million dollars, including negotiating one deal worth $75 million. He now coaches startup entrepreneurs on how to do the same.