I don’t see myself as much of an entrepreneur at the moment since by definition an entrepreneur is a person who sets up a business or businesses, taking on financial risks in the hope of profit. I’m not one of those. Not now. I’m just a guy. One who is building a product with a close friend which will hopefully see the daylight soon. About the only risk I have taken is to quit my previous business of selling enterprise software products to do what I’m doing now. Yes, I have been an entrepreneur in the past- a fairly unsuccessful one. I have worked for a start-up for nearly 3 years before that. So, I have some experiences to share. In this blog I will stick to how to approach investors.
I approached investors to raise funds twice in my life. I was rejected once. And in the other time, we did not eventually take the money. But that’s another story. The first guys I approached are not professional investors. They are a non-it services company- a pretty prestigious one, the biggest in their industry. Serving almost 75% of the industry. We’d done a software product prototype for the same industry that they operate in. We’re looking for investors who had profound domain expertise about the industry, since we were little on the weaker side on that. We got one in them. They could have been our strategic partners, they were fit for the job as they were already buying software products and services to provide managed services to their clients. They understood the software business well and the pain associated with it. Both for the customer and the vendor. After tens of hours of meetings, multiple product demos and test runs on one of their clients, we got them. They were ready to do a convertible debt with a cap deal with us and one of their guys would play an active role in the startup. We crossed a milestone that is considered quite an important one by many entrepreneurs. This is what I believe we did right:
1) Our product was not perfect. Not nearly. It worked well in other markets. But in India it would not. It would need some customization. We knew it, we acknowledged that they knew better than us. Since they would take part in day to day running of the company the fact that we did not have as much expertise as an investor would have liked to see in us before he could invest did not matter much, hence. As much as they appreciated the humility in us, they loved how we wanted to be transparent to a fault. Ultimately you are communicating with your investors. You got to do a near perfect job in articulating your weaknesses. Because they will see it. Almost instantly.
2) Although the product was not perfect but it was nothing less than damn good. The product guys had done an incredible job. The product was working well in other markets. The investors got this figured out- the potential of the product once it is tweaked to Indian needs. So we had built a product that had some traction. Okay, it needed some changes to fit to the Indian market but that could be done. You can be a Steve Jobs in making presentations. But nothing is more articulate than a product that works. You have an idea and you start building something. It is almost guaranteed that after a few months when you release your first version, when the idea becomes a product/prototype it is much more evolved. You have much better experience about the market and what you are doing overall. It also shows that you are passionate about your idea and that you are committed. Now, that you have your first release its a good idea to get a few clients to use your product. Even if they don’t pay you. If they say to your investors that they are loving your product and would definitely become your client once their current contract is over, it is no less than a sweet song to investor’s ears. And when you have a product you can also flirt with the idea of not going to investors at all, although I am not fond of this idea. Building the first version doesn’t take more than a couple of months or maybe a little more. If it takes more than you’re not doing it right. Neither does it take more than a couple of lacs of rupees ($4k in India). If you can’t raise this on your own, then probably you should think again what you’re doing.
3) We’re all working full time and we’re working on nothing else. I am sure this was a huge bonus for us. I know an Indian company that got funded by a VC. When I spoke with one of the founders, he said the only thing he regrets is that couple of his friends did not join him full time early on. If they had he would have been at least 6 months ahead of where he is now. I’m doing my second start-up. My co-founder happens to be my lead and only programmer. He is not full-time into this. And this is a real pain in the arse. We’re at least a couple of months late to launch our product.
4) You really got to know the domain you’re in extremely well. Since we were not extremely good in understanding the needs of the Indian market, our product did not fit well into the market. But we were in a way lucky because the investors in our case, were going to join us in running day to day operations. They were immensely experienced in the domain. I don’t think there is anyone in India with more experience better at what they do. 75% of the market pays for their service, maybe more by now. So we got the perfect balance in the team. The investors would give product inputs that would help us build a product that fits well with the Indian market. Along with that their main responsibility was marketing. They were already doing marketing of their services. So, if you’re developing an mobile ad network service, you better get one of the best marketing guys from InMobi in your team.
Right now, I can only think of these few critical elements that I believe helped us get a yes from the investors. I may have missed a few points, but I’m pretty sure if you get these points covered well, your chances of getting investment would increase many folds.