How To Think Like An Investor
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For most entrepreneurs, they don't think of investors as people. What they do instead is think of investors as money which is a fatal error. You can't consider private investing as just like picking a stock on NASDAQ. Private investing is personal. Investors have goals, preferences, fears, and problems, just like entrepreneurs. When they are cut, they bleed. When something goes wrong, then they worry. So, the relationship you build with investors is essential to obtaining money from them. In the most simple terms, investors can be put into two categories: Subjective and Objective. One who is somehow emotionally connected to the entrepreneur or the company and its product or offering is how an investor is described in the subjective category. Because they know the entrepreneur directly or through a third party, they therefore have a comfort level regarding the entrepreneur's ability to perform. Or they are familiar with the product or more specifically the need for the product and wish they had thought of it or could have bought one a year ago. As for these investors, they can get involved at a very early stage and they may even be in the friends and family round. They may either be accredited or they may not. Thanks to the emotional connection, they are therefore more forgiving of missing elements to the business plan or business model. It is possible that they want to invest and look for reasons to invest in order to justify their emotional decision. An Objective investor is in the business of investing. Because they are likely to have many projects they are considering investing in, they look for reasons not to invest. One example is that if they are considering 5 projects and trying to make a decision, then they have to eliminate at least 3 to narrow down their choices. Therefore, they look for things that incomplete. The business plan is difficult to read or understand is the easiest factor to use. Because they use some standard formula rather than real date, the financial projections are unrealistic or incomplete so the investor knows that entrepreneur is just "guessing." There is another big cause for elimination by an Objective investor and that is that the company has an inadequate plan for execution once the money is received. Aside from the fact that they haven't completely figured out what they will do with the money, their use of funds is also vague. An Objective investor doesn't want their money used to "figure stuff out", they want it to go directly to activities that will help the company scale and generate revenue, and can be measured through milestones or project plans. Ultimately, it will be an emotional decision for the Investor to actually write the check. If you are seeking serious investor money, you won't get to the point where the investor can make the decision to invest if you have flaws in your business plan or business model.