In the first article in this series I focused on the difference between the perspective that a founder has and the one that investors have when it comes to evaluating a company. My central point was that investors look at a company in a significantly different way. It’s not just that they’re looking at it as a potential investment instead of a business. The entire framework that they use for analyzing a company is different. What is also different is the language and underlying concepts that they employ.
I also described the difference in experience that drives these different perspectives. An entrepreneur is focused on an individual company, their company. They have put a great deal of effort, resources and thinking into that specific company. Their objective is to build it into something substantial. Investors, on the other hand, see a continual flow of opportunities. They sift through this flow looking for the few opportunities that they will invest in. This difference in perspectives creates a real challenge for entrepreneurs who are seeking venture funding.
When faced with this challenge, most entrepreneurs push on; guided by their own perspective on the process. There are a number of reasons why this is the case. First and foremost, entrepreneurs have egos and a strong faith in their ability to see the way forward. This is a fundamental characteristic that is essential for entrepreneurial success. Faith in your own ability to overcome obstacles and objections is critical to building something out of essentially nothing. Successful entrepreneurs manage a consistent focus and sustained effort based upon this self-certainty. But there are times when such certainty creates more problems than it solves. And one of the areas in which this is most commonly the case is presenting to investors.
Try looking at it this way. Let’s suppose that you live in Atlanta and that you are familiar with how they do things in that fine city. When you go out at night to a restaurant, you have a pretty good idea of what you like and how to order it. Now suppose you travel to Manhattan. Things are a bit different there. First and foremost, you don’t know the restaurants that serve the food you prefer. Then, when you do see a menu, there are strange dishes listed. But the truth is that, with effort and a little experimentation, you can generally figure out what you like and sort through the options.
But now let’s go a step farther. Let’s take a taxi to JFK and a flight to Paris. What your experience likely to be in the city of lights? The French have a significantly different approach to food, cuisine and the restaurant experience. And then there’s the language. All the menus are printed in French. As I’m sure you will agree, the challenges are considerably greater. It’s not just a matter of finding a good place to get a hamburger or a steak. If you are truly to experience the French approach to dining, you have to immerse yourself in an entirely different frame of reference.
There are some similarities between the situation in Paris and presenting to investors. It would be too easy to assume that you could simply deploy your understanding of Atlanta cuisine on either the left or right bank. The problem is that, although you might successfully find an edible barbecue, you would miss the richness, tradition and experience of French cuisine.
You see the real question here is, why did you go to Paris? Did you travel all those miles simply to experience what you could more easily experienced by staying at home?
Of course, investors represent an entirely different set of rewards. But I hope you’re following me and see the point I’m making. Talking to investors within the framework of entrepreneurs is much like going to Paris in search of a good barbecue.
A second characteristic of entrepreneurs is that they tend to stick with those things that they are comfortable with. You might have spent months or years putting together your business, assembling a team and generating an initial client base. Simply put, you are very comfortable talking about that process and within the framework that helped you build the company. Investors tend to take entrepreneurs outside of their comfort zone. When entrepreneurs are working on their company, the company is all that there is. They see it as unique and their creation. Experienced investors have probably seen dozens of variations on every conceivable company. For most of them, there is little that is new under the sun. They have seen most all of it before. First experiences with this perspective can be seriously destabilizing for entrepreneurs. At the core of this reaction is a suspicion; a suspicion that the investors may know more about your company then you do.
I do a lot of work with entrepreneurs who are seeking venture funding. Many of them have had extensive and unsatisfactory experiences with making presentations. There is a great deal of frustration. On the one hand, their company needs financial resources that they don’t seem to be able to acquire. On the other, they hear stories about how much investor capital is out there and how difficult investors find the process of identifying investment quality opportunities. Entrepreneurs that I work with, particularly when that work is over a period of time, tend to become bilingual. They learn to speak to investors within the investors’ framework and using the investors’ language. And that single skill often is what makes the difference between failure and success in the money chase.
So let’s go back to my example and the consideration of international cuisine. You need to ask yourself a question. And it doesn’t have anything to do with being lucky! How much more successful will your experience with French cuisine be if you take the time to learn at least the basics of the language and the underlying concepts of French cuisine? Then refocused the question. How much more successful will your experience with investors be if you take the time to learn the basics of their language and the underlying concepts?
© Dr. Earl R. Smith II