Advice for entrepreneurs: Research everything
This summer I have had the opportunity to observe and listen to many startups as they are raising money for their ventures. I wrote about simplifying your pitch here, but here are my thoughts on two other mistakes I have seen entrepreneurs make a few times: not researching the investor and not researching their competition properly.
Know your investor – Prior to meeting with an investor, you should thoroughly research their background, their past experience, and their track record as an investor. Knowing an investors background can allow entrepreneurs to build a better relationship with investors, the key is to know what you have in common with them. It seems simple, but something as small as growing up in the same community or playing the same sports can help build the foundation of your relationship. Next you should research the investors backgrounds. Many investors have previous experience as entrepreneurs, corporate executives, or consultants; this is important to know because an investors background can provide entrepreneurs a better understanding of how the investor may evaluate their company. For example, in my short experience, former entrepreneurs seem to be more concerned about the founding team and their abilities, while former executives place more weight on a startups financial projections. Most importantly, researching an investor’s past investments can save an entrepreneur a lot of time. For example, if an investor only invests in educational mobile apps, it is a waste of time to meet with the investor about a hardware security product for large companies. It can’t be overstated enough, research the investors prior to meeting because it could save you time and unneeded embarrassment.
Know your market – In a pitch, never say you don’t have competition and always consider substitute products. There is always some sort of substitute that your customers are using instead of your product. For example, AB InBev is known for its beers Budweiser and Bud Light. But when thinking of its market, they don’t only see other beers as competitors. They see any drink a person can consume as their competition. That includes soft drinks, teas, juices, literally anything else a person can buy instead of their beer. This is important, because when you pitch an investor and tell them you don’t have competition because you are the first company in a specific space or that your company is the only company providing a specific service, there may not be other literal competitors doing the same exact thing, but I can promise there are substitutes to your products that your customers are already using. And if don’t realize these substitutes are your competitors and communicated that to the investor, I doubt that an investor will trust you with their money