You might be surprised by just how many successful founders end up becoming investors themselves. There are A LOT. For a startup, everyone tells you to look for “smart money”, preferably a successful founder from a similar industry. Why? Because entrepreneur investors have intimate knowledge of what it takes to build a business like yours from the ground up. Also, they are the investors who do NOT simply want to write you a check; they are often ready to be your partner and advisor.
So, how do you attract entrepreneur investors? We look to Eric Lagier, whom you might remember from last year’s Arctic15, a successful Nordic founder and managing partner at byFounders, an early stage venture fund based out of Copenhagen and Silicon Valley, investing across the Nordics and Baltics, backed by some of the region’s most accomplished founders.
Eric Lagier has been an executive at Oracle and Skype, but his business career only started there. He is also a serial entrepreneur with experience advising numerous startups. After raising money for his startup Memolane from major VCs in Silicon Valley, Asia and Europe, he grew the business and sold it to HP. In 2008 he began his tenure as an angel investor and is now running byFounders, a fund he started in 2017.
Here are 5 tips from Eric’s experience:
1. Tell the Investor Who You Are and Why You Care to Solve the Pain Point
An idea alone won’t sell. Investors with experience as founders know that just as important as the idea is the person driving the ship and the passion they have for solving the problem their business addresses. Someone who doesn’t have the mental and emotional fortitude to overcome the mountain of obstacles, stressors, and headaches that await any startup is not to be invested in, so it is up to you to communicate your personal traits and why you and your startup are suited to solve your customer’s pain point.
2. Break down the Pain Point to its Core
Investors want to know the very foundation of your consumer’s problem and how your product solves the very core of their issue. Eric suggests you keep asking yourself “why?” when it comes to your customer’s problem until you get to the root.
This can be difficult as you may not understand exactly why the problem exists, but this is where qualitative research can help you. Seek out potential customers and ask them what they are dealing with and why the issue is important to them. If you yourself are an example of your customer (as many entrepreneurs try and solve problems from their daily lives) then take some time to really diagnose why the problem hurts you or takes away from your day-to-day. Sending direct messages on social media is another way to do qualitative research on your customer. It will take a while as 39 out of 40 (or worse) people you message will not respond to you. Still, a few responsive individuals will suffice to give you some insight into your customer’s pain point and ways you can improve your product.
3. Bring a Minimum Viable Product to your Pitch
You don’t necessarily need a living, breathing product when you enter the meeting, but let your investors experience your solution. The key, Lagier says, is to give them an opportunity to “see firsthand how intuitively and simply [your product] solves the problem you’ve identified”.
Of course, an MVP is nice here because you can actually experience the solution in the product’s early stages. This is not the time to stress yourself to create a finished and honed product. This is the time to let your investors experience the very basics of your solution and how it solves the client’s problem
4. Show that early users of your product love it and show that with data
You need to clearly define your Key Performance Indicator (KPI) or the metric that is indicating your product is successful with your early users.
Communicate your KPI and show your investors that real users actually love your solution to their problem.
– Eric Lagier, byFounders
You should communicate how you are measuring your KPIs and how you are measuring your customers’ feelings about your product. Remember that depending on what business stage you are in (just starting, pre-seed, growth, etc) having a lot of data here is not a big deal. Even if you only have two pieces of feedback from real consumers, show that.“
5. “The Ugly Side”
The thing many people skip i.e. the thing that most concerns you about your startup, the reason that your startup might fail or take a very long time to become profitable, and/or the issue you do not know how to solve. Some of the most beneficial investors you can have are those who want to be your “partners” in this. Sharing your weaknesses and fears will not necessarily stop you from getting funded. In fact, it may be the reason your business succeeds. Eric Lagier and VCs like him want to help your business succeed and have experience in building startups from the ground, so make sure to share because they may suggest a solution to your problem.
Eric says showing your ugly side “builds trust and shows that you know your business and the dynamics of the market you are entering — as well as your own limitations”. This is not the information investors want to hear or see AFTER writing you a check. Remember that an investor with a background in entrepreneurship wants you to succeed and often will do what they can to make that happen, so it’s in your best interest to give them every opportunity to do so.
What do you think of Mr. Lagier’s advice? Entrepreneurship is hard and lonely, and you do not have all the answers. Would an experienced investor help you put your business in the best position to succeed?
