[Editor's note: Startup Jedi is a new column by GeekWire chairman, investor and serial entrepreneur Jonathan Sposato. Future columns will be made available exclusively to GeekWire members in a special members-only area of the site. You can become a GeekWire member by registering here].
I hear a lot of startup pitches.
I can tell you how many startups are currently pursuing the tablet presentation space, or online content filtering for kids, or iPhone apps that identify parking spaces near the hippest bars. The pitches are usually quite good, because they all have heart and the entrepreneur is, by definition, super committed.
On the rare occasion when the pitches are bad, it’s usually because of one of the following things:
- A lack of situational awareness that the segment is already super crowded.
- The entrepreneur is not a clear communicator, or under par in his or her ability to sell, and unfortunately someone hasn’t pointed this out yet.
- Something truly outlying like the entrepreneur is a wing nut, smells bad, feels entitled, or was rude — all barriers to transferring confidence to a potential investor. In other words, the entrepreneur is uninvestable as a person.
But most of the time, I like listening to the new ideas. The exchanges are always productive two-way dialogues, where I end up learning just as much from the entrepreneur. Frankly, I use these meetings as a way to gauge the marketplace. Are entrepreneurs noodling on health care ideas, like they were a couple of years ago? Or are marijuana vending machines the new hotness?
The clumping of ideas is always interesting.
These meetings also hold up a sort of distorted mirror back to me. They reflect what the community perceives as my value-add. Am I the guy with the UX expertise? Or the one who knows how to exit to big companies? Or the expert on lean bootstrapping without a formal series A?
In each of these meetings, there’s an underlying message about what they are seeking from me, in addition to funding.
So, as an angel, what makes me ultimately invest?
Zillow co-founder Rich Barton often talks about how he knows a good investment “when he sees it.” With the good ones, there’s something that causes him to sit up and lean forward. I agree. When you hear a lot of pitches, your ‘blink’ gets pretty good in sensing when the right ingredients are present.
But what are these ingredients exactly? For me, there are three key phrases that, if present, make me perk up:
1) “I have several reasons why we will crush this.”
Put another way, does the entrepreneur speak ‘grandiosely’ about the opportunity. I like entrepreneurs who speak provocatively and ambitiously about their concept. My favorite English professor used to say: “If you can’t articulate your thought in words, then perhaps the thought doesn’t really exist.” And the concept goes beyond that: “If you can’t state your vision ambitiously, then perhaps your idea isn’t so interesting.”
So instead of saying, “This is a photo sharing service,” say this instead: “We’re creating ‘phototainment’ — a whole new way of communicating between families using photos.” This story in the New York Times suggests that there’s a very thin line that separates the personality of a promising entrepreneur from a person whom psychiatrists might say needs some therapy. So, go ahead. Make me wonder about you a bit. Speak grandiosely about why you will crush it.
2) “Here’s a list of other people smarter than you, who are also investing.”
You want to know a secret? Investors enjoy their interactions with other investors. It’s that simple. When they see that several other established investors are betting on your company, it not only lends some additional validation for the concept, but they see an opportunity to sit across the table from others whom they respect.
3) “Here’s exactly how I plan on using your money.”
Investors need to have some idea of your story for growth, with money as the language of that story. Look, I don’t need to see an actual P&L (although if I do see one, I’d actually be impressed). But it’s incredibly heartening if you have thought carefully about how you would deploy the investment dollars.
Think of it this way: That guy you are trying to get money from probably got to where he is because he’s at least decent at budgeting, allocating his investment dollars in balanced ways, and trading off return-on-investment percentages across different asset classes. You can earn a great deal of confidence if you simply expose your thoughts for future growth, in terms of dollars.
Bottomline: The truth is, there’s probably many more factors than these three that cause seasoned investors to throw money at you. There are intangibles like the entrepreneur’s reputation, track record, and persuasiveness. Maybe your kids happen to go to the same school and you just hit it off. I can keep going here.
But to those of you who are seriously committed to consistently winning investors’ confidence, remember to keep these three notions top of mind.
Please tell me: How you’re going to crush it, who else agrees with you besides me, and how you’re going to spend my money.
Startup Jedi is a new column by GeekWire Chairman Jonathan Sposato. A Microsoft veteran, he served as CEO of Picnik and Phatbits, both of which were acquired by Google. Future installments of this column will be made available to GeekWire Members in a special members-only area of the site. You can register to become a GeekWire member here.