Sending your business plan to an investor in the hope of getting funded is a lot like sending your novel to Random House in the hope that your book will become the next DaVinci Code.
If you’re lucky, you’ll get a curt e-mail telling you “thanks but no thanks.” Most of the time you won’t get any response at all.
That’s why, on the rare occasion that a leading investor in early-stage companies takes you into his confidence and tells you exactly what he’s looking for in a startup, it’s time to pull out your BlackBerry and take note–lots of notes, actually.
Recently, my friend and colleague, Noah Goodhart, a managing member of WGI Group, posted an article on his blog listing the eight qualities that his firm looks for in a startup it’s willing to back. Noah knows what it takes to launch a successful business. Not only did he and his brother, Jonah, run one of our biggest affiliate sites in the 1990s when I was CEO of NetCreations, my e-mail marketing company, but Noah then went on to become an angel investor in Right Media, an online advertising exchange that was acquired by Yahoo! in 2007 for a boatload of money.
“Over the past few years, I’ve made investments along with my partners in over a dozen internet companies through our seed investment firm, WGI Group,” Noah says. “During this time, I’ve started to develop a good sense of the factors that contribute to an entrepreneur’s success in raising money.”
And what’s on Noah’s list?
- Have a technical co-founder. “Sometimes entrepreneurs opt to hire a consultant and outsource the development,” Noah says. “To investors, this often signals that you weren’t able to convince a talented engineer to join your cause.”
- Start with your own money. “If you have come up with the greatest idea since sliced bread, you’ll want to start by putting your own savings to work. You’ll be sending a positive signal to investors down the road that you aren’t just looking to take risks with other people’s money.”
- Build a prototype first, raise money after. “Use whatever personal capital you can scrounge together to develop an initial version of your product or service, and then seek capital when are ready to move from prototype to launch.”
- Seek investors in a related field. “My background is in online advertising, and thus I’m often much more receptive to businesses in this space. This approach is good for at least two reasons: 1. Investors with a background in your chosen area will be able to provide a lot of advice and strategic value beyond just the dollars they bring and 2. The typical career path of entrepreneurs is often to spend at least part of their time seed investing after a successful exit, so you’ll generally be approaching a receptive audience.”
- Network with seed investors. “With great online networking tools such as LinkedIn, networking is dramatically easier than it was in the past. But if you aren’t able to network with someone and you need to initiate a cold contact, be sure to research the potential person and approach them smartly and with knowledge of their general investment interests.”
- Focus on execution. “One of the biggest misconceptions about startups is that it is all about coming up with a great idea. My firm is more likely to back an entrepreneur with an average idea but who is a great executor because we know that, through superior execution, the entrepreneur will evolve the idea and business into something great.”
- Solve a problem where you have a unique insight. “The best businesses tend to emerge when you experience a problem firsthand and say to yourself, ‘there must be a better way.’ Simply solving a problem generally isn’t enough. You need to solve a problem where you have a unique or special insight and can offer a solution that isn’t obvious to others.”
Bootstrap. “It is very important to figure out ways to make a big impact with every dollar spent by your company. Demonstrating to angels that you can stretch your funds is often a critical deciding factor.”
Got it? Now, go for it! Investors like Noah Goodhart don’t share their playbooks every day!
This entry was posted on Tuesday, May 26th, 2009 at 11:23 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
