Here we are in a small, cosy room of the SwissTech Convention Center during the Seedstars Summit week. The next workshop is about to start.
All seated in circle in large sofas, like some sort of friends meeting, you can see three kinds of people.
- The mentors, the ones with years of experience, who know a lot about fundraising. They’re here to share their point of views as answering one’s questions.
- The entrepreneurs. They’re all here representing their startup and will be going back home with lots of new ideas.
- And us, the media. Sitting among them, with our computersready to type any kind of information.
Here we go.
To start, the mentors present themselves.
Florian lives around the world. He works with food, travel, hospitality and wine. He invests in early stage start-ups and has a firm in advertising. Eloi raised almost $8m in one year and has a lot of experience in venture capitals. Florian (yes, there were two Florian mentors) worked in healthcare, life-science, and biotech. He only deploys capital in emerging markets (like access to clean energy, fintech and access to healthcare). He’s interested in creating middle classes.
Let’s talk about fundraising. The art of persuading, convincing why you need the money.
The mentors start by asking : « in your opinion, what’s the most important element to raise funds? »
The main answers in the room were: money, team, technology… but also the capacity of driving your visions, moving things forward. Who has these capacities? The founder. He’s the most important. He needs to be passionate about it.
« How do I, the person who gives you the money, know that you’re mad enough about your project to put my money into it? ».
One mentor then asks an entrepreneur: « What’s your project? ». After some explanations, the mentor adds « You didn’t answer my question ». Everyone in the room is surprised, the man literally just explained what his business does, it seemed like he did answer the question. « No, you need to tell me WHY you do it. I know I asked what, but you want me to emotionally connect with your project. Because that’s the only way I’ll give you my money. There are two ways of doing that: through purpose and opportunity. »
There we are, rather than coming up with what you do, statistics, the market, explain why you’re taking the risk of failing, of losing all your money. It raises the thought: « Wow, he/she is really serious about this ».
But how easy is it, to connect with the investor? Not that much. To do so, you need to understand who are the people you’re speaking to. You’ll need to change what you’ll say depending on who you’re talking to. How? By raising the investor’s interest, identifying the needs and long-term benefits you can bring him.
However, you also need to think about your side of the story. « How am I going to keep working with these people, who I take money from, on the long run? ». Are these investors people you’ll want by your side all along? Once people invest in you, they don’t let you go.
The why is the motivation, but here are the three things that make the investor consider the investment:
- likeability – do you get along with the investor
- credibility – what makes the investor believe you can do the job
- probability – is this project going to succeed
Likeability is the most important one. Try not meeting the person in their office. Give preference to friendly environments, try connecting as fast as possible. This applies to your dress code as well. « You’re selling your life, not your product ». Don’t be too uptight but not too laid back either.
Where does the money come from
Like one of the mentors said, « The best investors are family, friends, fools and sector companies ». He then added « Don’t be shy to ask for money. I launched my first company when I was 19 and I had no money. So I asked friends, and I got $100 here and there. »
« It’s a form of securities offering in which an investor invests capital in exchange for an equity stake in the company. The term seed suggests that this is a very early investment, meant to support the business until it can generate cash of its own »
Seed money comes from three bucket investors:
- Business angels: often old entrepreneurs who made it (i.e Jeff Bezos, see article)
- Corporate Ventures: here, we’re talking about incubators, governments…
- Love money (<3): It’s the best money one can get. It comes from friends, who usually are far from the sector.
In emerging markets, there are no business angels (there aren’t that many investors). So the option of love money is the best one.
Do your homework, kid
Someone from the crowd then asked a mentor, « Ok then, in your opinion what are the criteria to invest in early startups? »
And the answer basically was: do your homework.
« If you come to me, I expect you to know what you’re talking about. Nowadays, in five minutes on Facebook, LinkedIn you can find out what I do, where I come from, if I have kids. It’s easy to connect with me. You should know if there are companies who tried doing the same as you and failed, and if they did, why? When you see someone, look them up on LinkedIn. See if you have a common connection, mention common subjects while doing conversation. »
Always remember that most people aren’t investors, but they may know some. Always show that you’re able to do it so that people will talk about you. Networking is everything.
The elevator pitch
Well described by its name, the elevator pitch is the pitch you would give if you found yourself taking the elevator with a billionaire. Well then, you have no more than a minute, sell your idea, what would you say?
The elevator pitch is the essence. It needs to answer three questions:
- what’s wrong, what’s the problem
- how do you fix it
- what’s in it for the investor
« Well, didn’t you say earlier that it was all about the why? » – said some smart people from the crowd.
But the mentors were expecting that interruption. During the elevator pitch, you can’t answer the why anymore. You don’t have time for that. This pitch lasts forty seconds, you don’t have time to explain your passion. The objective of this pitch is to grab the attention.
Help, I’m broke
One of the worst things is to expect money when you’re about to sink. On the other hand, it gives you the possibility to do enormous things. If you have problems, don’t show it. Always work relaxed and focused on the business, but don’t work alone. One of the mentors said when he was at University he only had friends who couldn’t invest in his business. He then had the idea of becoming friends with sons of rich people. The technique worked: he got the money and kept his friends.
« Do I have to be honest during my pitch? »
Honesty means you don’t lie, you just communicate what you are convinced you can do. Honesty is all about storytelling, you just need to choose the angle. Don’t be shy to ask questions. Ask if they know someone who can help, who could be interested.
How can I stand out during my pitch?
Think of yourself as the last one to go. Think that the investors have heard sixty-five pitches and you’re the fifty-sixth. Does that thought change your pitch? You need to fill the person with your idea, make them fall in love with it. You need a long-term vision, and always keep control of your company.
When working in a highly competitive market, you need to easily explain the difference between you and the competition. However, you need to be better and sexier.
To attract, you need to inspire.
By Jeanne Chaverot
Last modified: 15 avril 2017