Seven different types of investors and how to win them over
5 July 2018
While some lucky business owners can self-start their own business with little or no external input, most businesses will need a little financial help from investors along the way. You’ll meet many different types of investors for startups, so here are a few to look out for, a few to avoid, and how you can win them over.
1. The Non-Tech Investor
These types of investors may not fully understand the technology behind your idea but will have plenty to say about your product, market and business model. They will form their own opinions and assumptions based on their experience, which you may or may not agree with. Try to move the conversation away from these assumptions, instead talk facts and make sure your value proposition is clearly communicated. There’s often a time for questions at the end of most pitches, but try to encourage questions throughout your presentation. This way your audience doesn’t get lost early on and you can clarify whatever it is they don’t understand so they can follow the rest of your presentation. Also, try to consider different ways of communicating your idea. For some, it will be what you say that has the most impact, for others, it will be the visuals and graphics on the slides that help them to understand – a physical prototype would be a very effective way of ensuring your idea isn’t lost in translation.
2. The Skint Investor
Maybe their pockets were turned out by a startup that didn’t quite work (see Unicorn Shit). Or they’ve ploughed further investment into a rising star. Either way, not all investors will have cash money on tap. They will, however, want to see what’s around the corner in a rapidly changing World even if it’s just to appear active in the market in front of their peers. Keep them on side and use your pitch to them as practice. Remember most investors mingle with other investors so word will spread. Just be aware that they have no intention of investing money in you right now so avoid wasting too much time with these types of investors as it can become a drain on your precious time.
3. The Detail Investor
These types of investors want to know every tiny detail about your business, even details explaining exactly what your business will look like five years down the line. Of course, investors want to see a five-year forecast, and they expect this to look realistic. But you can’t see into the future and have all the details, so explain how you plan to get there but try to stay away from the tiny little details. You can’t be certain about where your business will be in 5 years’ time because as a startup you’ll face many challenges and turning points, it’s how you will learn and grow. Showing that you understand this should show you know what you’re up against and you’re happy to adapt in order to succeed.
4. The Sheep Investor
These investors are worth maintaining a good relationship with. They can give you some great feedback and advice that could potentially really help you, the only problem is before they consider investing in your startup, they want other types of investors to invest in you first. It’s worth finding out about what they’re unsure of, any doubts they might have, and whether or not you could smooth them over. You may want to start by finding additional types of investors for startups, whilst keeping a strong relationship with these investors, as they might become useful to you once you have your first few Angels on board.
5. The Helpful Investor
If you come across a helpful investor you’ve struck gold! They want you to succeed and for this reason, they are extremely helpful. However, before investing they will typically want to see more traction from your business, which is great! If someone with experience in your market has found a slight flaw in your business during these early stages, you can fix it and prevent wasting money launching an inferior product. Maintain a good relationship with this type of investor and listen to their advice to help grow your startup.
6. The Greedy Investor
Not all investors agree with the first valuation that’s brought to the table, and they might ask for more equity than you first proposed. There’s nothing wrong with negotiating but take your time before signing any deals and ask them to explain how they reached their valuation. Then you can address any flaws or issues they might have with your business plan. It might be worth looking a bit closer at your value proposition and seeing if there are any changes you can make which will help you gain a higher valuation before fundraising. It would be wise to seek some outside advice to help you prepare and defend your offer to these types of investors. Don’t go with the first investor you find, keep your options open, go to meetings and see what other investors are prepared to offer you.
7. The Doubtful Investor
These investors might show interest in your business, but doubt you as a founder, which can understandably feel pretty personal. Rise above their perceptions and rather than getting angry, find out if there are any reasonable concerns they have and try to implement some changes that may reduce these concerns. If their doubts are unfathomable, don’t take it personally and think yourself lucky you didn’t go into business together. Carry on looking for an alternative, more suitable type of investor.
Investors meet their fair share of startups and only invest in a few, so don’t feel too despondent if you get turned down. The most important thing to take away from pitching to the many different types of investors is their feedback and advice. Learn from this experience and use it to strengthen your story and pitch. The more you put yourself out there, the better the chance you give yourself to succeed and find investors that align with your business and give you that elusive yes.