Why Investors Think The Way They Do

Over the past decade I’ve been able to take part in over $300m+ in venture funding as a founder, VC and advisor.

And writing over the past year has been thrilling to say the least. I’m glad you are here and I’m excited to go deeper into this mysterious subject for you.

Every week I will be deep diving on a topic to help you on your fundraising journey.

To start, let’s deep dive into how an investor thinks when investing into a company.

— Gian

This week’s tip: Understand how an investor thinks before you start to fundraise

Any sales pro will say, “the key to making a sale is to understand how the person opposite them thinks.”

Selling someone on the opportunity to invest into your company is no different.

The problem is, founders who have these kind of insights are rare.

This is why its important to understand what it’s like to be an investor.

And why they think about companies they way they do.

Below I’ve included 5 reasons why.

Note: this is for angels and VCs-alike.

1. Investors are generalists.

In the same day, an investor could be looking at 3-4 completely different companies.

Not only do they see potentially hundreds of companies a week.

But looking at deal flow is the tip of the iceberg of what an investor does day-to-day.

This can be anything from:

• Portfolio work
• Internal politics
• Thesis research
• Attending events
• Speaking at events
• Fundraising for the next fund
• Tweeting how they did all the work on a successful investment (lol)

As you can see, investors don’t have time to understand complexity.

All they want is clear, simple reasonings for why they should be spending time with you.

They will always be meeting you with a base level of knowledge of your industry.

They will never know as much as you do.

So make sure you understand that you are the expert in the room.

The great founders can make an investor understand their complex industry/problem.

That is what they are investing into.

2. Investors invest on a lack of evidence.

There is one constant in investing: you will always be investing with a lack of evidence.

No matter the company, there is not enough evidence in the world to guarantee a company's 100% success or failure.

Investing is inherently risky—a bet.

However, investors still need to find conviction in something.

That something is usually the founder, and the belief that they will succeed in the future.

Your goal is to make sure an investor believes you will succeed by showing:

• how you build (execution)
• why you build (passion); and
• what you’ve built so far (traction) 

3. Investors rarely actually invest into something.

For Seed - Series A investors, they will be leading on 1-3 deals a year.

The unlucky ones may go a whole year before they find a company that is good for their fund!

Think about that for a second…

Within a 12 month span, investors know that they will have a small amount of shots to show why they are a great investor.

It’s why they are so adamant on the best. They have to nail it.

Otherwise they may have to wait a whole 12 months before they can find another one.

Your goal is to make them think you are the best company they’ve seen this past year. And that the opportunity is so big they’d be silly to pass on you.

4. Investors expect every company they invest into to return their fund.

Without getting into too much detail on fund dynamics (let me know if you’d like a future deep dive on that!):

Investors expect every single exit to return the rest of their investments.

If you can’t be big, you aren’t worth the risk.

You should always be thinking big. $1 - 10bn at least. Show the simple steps of how you get there and why you will return their fund.

5. A VC’s job is to explain companies internally to colleagues.

When raising a VC round you will have one person in the fund who will be leading. This will most likely be the first person you speak to in the intro call.

At my fund, we called these “champions”. These champions will be your internal messenger within the fund.

The VC's first job is to make tell their colleague why they should meet you.

If the champions cannot understand how to explain your company to their colleagues in an easy manner this looks bad on them.

This happened to me many times.

I liked a company’s potential but found it hard to make it concise on why my colleagues should meet the company.

I even said no to companies that may have been a good bet, purely because I didn’t understand them properly. I was worried that I may look bad when my colleagues tell me they don’t understand and reject meeting the company.

This is why its so important to make sure an investor truly understands what you are doing at the end.

Give them the tools to make their colleagues want to speak to you, without you in the room to help.