Thursday, July 22, 2010

Quality of Deal Source, Why It is Important to Investors

To sell your product, you must understand the market. To get funding, you must understand the investors.

You probably have a stellar idea and a solid business plan, but you can't seem to get investors interested in you. You've already sent out hundreds of proposals, scoured websites and submitted business plans, and even have deals shopped. Still, nothing.

It's disheartening, but take courage. It's really a matter of knowing what to do and what not to do.

First, you have to know that the scattershot approach is really an exercise in futility. Like shooting blindly in the dark. You won't get results.

Investors work within certain parameters and in order to get to them, you must know where and how they operate. Here are a few important things you should know about investors:

Investors are very busy people.

Believe it or not, they don't sit around all day wondering what to do with their money. They have a lot of things to attend to: sit on boards, work on existing pipelines, attend conferences, manage funds, etc. They have around 10 meetings in a day. Though not all of them are with entrepreneurs. And those that are rarely result in funding (less than 1%).

Investors don't read every business plan that comes along their way. They are constantly inundated with deals so they have to screen them. The deal screening process is very similar to the “American Idol.” There are thousands of hopeful applicants but in the end only one will be proclaimed as the “American Idol.” In the same breath, investors receive hundreds of deals a month. It’s foolhardy to go through each one of them so they try to get rid as much as possible to save time and effort. They select a few which they feel have merit and fit their investment criteria. And out of the few only one will ultimately get funded.

Investors look only to trusted sources for deals.

Many entrepreneurs make the mistake of going to an investor’s website to submit an executive summary, proposal or business plan. What they don’t realize is that submitting proposals using this method has the worst hit rate.

An effective way investors screen projects is determining their source. Investors tend to favor deals referred by trusted sources or those who are in their network.

Investors listen to people whom they trust. The operating word here is “trust”. If someone they trust refers a deal, then they will most likely take a look at it. Getting any ideas?

Trusted sources tend to bring less problematic referrals. They will not risk their reputation by referring a bad deal. Furthermore, with their knowledge and experience, they help make the deal process more efficient.

Some investors put their money in certain sectors of the industry.

You don’t have to submit a proposal to every investor you see. Some investors only finance IT-related projects. If you’re looking to expand your restaurant chain, submitting a proposal to such investors is pointless. They’d drop you without batting an eyelash.

“Be thoughtful in approaching potential investors. Biotech investors, for example, don’t want to hear about a clothing manufacturer. A scattershot approach is likely to turn them off. Industry associations, local trade groups or, in some states, business-incubator centers can help point to potential angels” (How to Get Funding from Angel Investors,

Now that you have gotten to know a little more about investors, what can you do to get results?

Network, network, and network.

Getting your proposal to the investor’s hand is all about networking, networking, and networking. Believe it or not, this antebellum method of building relationship through networking and referral is the best technique to get investors.

Habile entrepreneurs are good networkers. Investors are looking for such; if you can network your way to an investor; it means you have networking ability to find clients in the future. Doing research and building relationships through networking with people who are familiar with the investor is paramount.

To put it quite simply, the best way to get to an investor is through someone they know and trust.

On my next blog, I will talk more about who these trusted sources and network are; and how to network effectively.

Jerome Gentolia is Co-Founder for Tech Launch Solutions and ComeUnite Network.

No comments: