Some Investors say that they invest in the management team first and then they consider the market and finally, the idea.
Route to Funding’s experience is that this is basically correct, but it’s also very difficult to call and the market, idea and management team are closely linked.
The first thing an investor asks is rarely based on why they think they have what it takes to be start-up entrepreneur (what ever those skills are anyway!).
It is always “What’s your idea” or a theme around that and this is where a lot of entrepreneurs fall down. The first two minutes is make or break.
It is rather like making a judgement call on weather to recruit someone based on the font they used on their CV. That doesn’t happen? Yes!
Investors see a lot of pitches and can make quick judgement calls based on their individual and probably basic filtering processes.
All successful entrepreneurs have had bad ideas just as many as unsuccessful entrepreneurs.
The ones who have made it big on their first idea are either lying, extremely lucky or where at the right place at the right time and it was someone else’s idea (and historical bad ones) and they joined in.
The difference appears to be that successful entrepreneurs manage to take bad idea and develop them and successful, not given up created a new idea from the bad one. I am not going to reel out the story about the light bulb…..
It is hard to judge someone on ideas alone, but unless they come with a track record as an entrepreneur/inventor (successful or not), investors don’t have a lot to go on.
It is clear that investors put quite a bit of weight on ideas, even if they claim that they are interested in the team.
This is not a bad thing, just realities of investment away from the text book.
The actual business ideas are a reflection of the entrepreneur anyway and digging into these ideas and seeing the entrepreneur’s response to challenging them, suggestions to silly ideas (or not-so-silly ideas) and see what they say.
Investors should probe how an entrepreneur is working to validate and defend an idea and emphasise the importance of not believing they’re own hype.
Do they defend their idea without taking in suggestions?
Do they loose it at the merest suggestion that their idea is not the next “Facebook” or “Ipod” or Virgin will not want to buy them out in 4 years time?
This should the case of the entrepreneur on the investor too as it should be a two way street.
Entrepreneurs that are rigid, steadfast and blind to the possibility that their idea might not be the best or that they think it is so good that investors should be jumping over themselves to get a piece of it and they do not need to put the work.
Entrepreneurs/inventors who can take this kind of feedback and run with it, coming back a week later with new improved ideas, proof points (or failure points) and a willingness to learn, think out of the box demonstrate an ability to be true start up entrepreneurs.
That’s not easy for most entrepreneurs to understand as they often fixed to their ideas, it’s just the way we are.
It’s not natural (even though it may make logical sense) to focus on experimentation and validation (or more likely invalidation) of ideas, with the stop working on bad ideas quickly.
They have put their heart and soul into it 18 hours a day plus for many months and perhaps longer.
Some flash up start telling them their idea is not going to change the world is not going to go down well.
You don’t normally get investment to continue to develop your idea.
The idea normally has to be ready to go. The investor does not usually give you their hard earned cash to validate the market.
Markets are critically important. Go after a market that’s too small and you don’t have an investable business.
Go after a market that you don’t know well enough and you could get eaten alive.
It may be a good idea and it is something we do for our clients to target investors that have some knowledge and experience in your market. If they have portfolio companies in your space then even better.
We know what we know, and although investors have to have broad knowledge on many things and work very hard to understand their markets they don’t know well, generally they’re going to stick with what they know.
If it works once, do it again and again.
The People, the Market and the Idea is the way most (if not all) investors should (and do) assess the opportunity.
But the idea itself, market understanding, the competitors, monetisation strategies, and validation of the idea are all very beneficial when it comes to getting through the door of an investor.
You can not get an investor’s attention without an idea that stands out in some way, or an angle on an idea that’s going to get them interested.