What Investors Really Think

Proven strategies for preventing investor turn downs

Q.  I've been working on an extension business to commercialize my medical rehab training services through web based tools. Recently I was asked by some potential investors about my competition. I explained in my business plan why I really have no competition. I get the impression that no one reads business plans before meetings. Does this indicate a lack of interest? I've been spending more time lately meeting with investors than running my business.

A.  Remember the bestselling book "Men are From Mars; Women are From Venus?" In the same way men and women can read situations differently, there is a galaxy full of ways miscommunications can occur between venture investors and entrepreneurs. Baffled business builders like you could easily call the venture funding process one big black hole of misunderstanding.

What venture investors are looking for isn't too mysterious. In their quest to find the dark matter – the points of growing financial value – they will ask a lot of questions. They want to understand the nuances of your business. They want to know why customers will buy and for how long. Because your entrepreneurial world is likely to represent new space to funding prospects, it is your job to educate them at a comfortable pace.

Competition is another area of opposing perspectives. Entrepreneurs all like to impress potential investors and often minimize discussion of potential investment risks to keep their attention. Actually, when venture investors hear the words "there really is no competition," they become even more cautious.

Here's what investors are thinking. "If this idea is so good, why aren't there other competitors?" Is paying customer demand for your professional training services just too small for other smart players to enter the market? Have other companies tried and failed? Is the entrepreneur naively challenging us to find withheld competitor names during due diligence? Is the entrepreneur capable of making accurate market assessments, especially as markets change during our period of investment?

If you really believe you have no competition. It's better to state something like this: "While there is no similar service to ours online, less than satisfactory alternatives to our service include these companies... Our approach offers the following cost-saving benefits... And, once we firmly establish this lucrative new online market, we can expect the following companies to try to follow in our footsteps."

If you continue to say to you have "no competition" and give the impression to investors that you have built an entire marketing strategy around the notion that you won't face any competitive challenges in the future then investors will assume you are truly "living on another planet."

You're right.  Most investors don't read entire business plans before first meetings. For time management purposes, busy angel investors and high ranking venture fund partners often wait until they meet the entrepreneur before dedicating a lot of time to a single transaction.

Here are a few more hints to the venture investor's psyche:

• Anytime investors ask questions or schedule meetings, take it as a sign of legitimate interest.  The time to worry is when potential investors don't return calls anymore.
• Whenever you catch investors asking the same question over and over again, assume that you and your target investors are not aligned. Ask investors to describe their specific concerns to help break down barriers and keep discussions alive. With a little patience and renewed dedication to sharing your knowledge in a thoughtful, precise manner, very soon you can become a venture investor's brightest portfolio star.

Take Command Action Step

Re-read your business plan. Take out all statements that "you have no competition." If your plan lacks a competitive risk assessment, then develop a list of companies that could possibly enter the market right after your company. Or, answer the question this way. What companies will lose business to you?  Why?  You can do it!

Do you need time-saving tips to help fund and grow your business? Ask Susan How! Write to small business funding expert Susan Schreter at susan@takecommand.org

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