It's in the investor's best interest to bet on the jockey—not the horse.
The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What’s the best way to pitch a startup idea to investors?” is written by Bob Wu, cofounder and CEO of Teleport App.
Asking for money isn’t easy. It’s discouraging when someone shoots down an idea you’ve grown attached to, especially when he or she doesn’t understand the space as well as you do. I’ve spent time fundraising for both a VC fund and a startup, and I can tell you it never gets easy. Here are some basic ground rules I’ve learned that might get you over the hump:
Investors have to sift through a lot of email introductions, pitch decks, and coffee meetings. Just like everyone else though, they have to take mental shortcuts in order to get through the volume of noise. Therefore, it’s best to pitch your startup idea to investors when your company already has a lot of traction (downloads, retention, partnerships) and/or revenue. This proves to the investors that there is a product-market fit, and that it’s time to see if it scales. Make it easy on investors to make a decision.
If you don’t have much traction or revenue yet, the next best way is to build a good relationship with the investors. Most startups pivot and end up doing something different. Therefore, it’s in the best interest of the investor to bet on the jockey and not the horse. If your idea is truly original and innovative, many investors will say no (ask Jeff Bezos and Travis Kalanick) because they’re scared of the risk. But the people who will say yes are those who believe in the founders to figure it out. I’ve heard numerous investors say that they didn’t understand a specific industry or vertical, but they liked the founder and trusted him or her. I’ve also seen investors back entrepreneurs who didn’t have a prototype/MVP and only had a pitch deck.
In my experience fundraising for a VC fund, even if my pitch was solid and I was able to give strong examples of why my strategy was superior to the market, investors ultimately made their decisions to invest based on their relationship with my partner. Yes, they cared about our strategy, but they cared more about who they were trusting with their money. This might be a bit surprising when you’re offering a can’t-miss investment opportunity, but so many investors have been burned by entrepreneurs who had great ideas but couldn’t execute.
Before you pitch an investor, make sure you’ve already recruited a strong team. Not having a CTO for a technology company, for example, will get you a hard pass. And always try to get warm introductions. Sending a cold email or LinkedIn request is both lazy and ineffective.
But, like anything in life, you need to build your network before you need it. Go out and be helpful to investors, send them deals that come your way, analyze a deal with them, follow through on any commitments you make to them, etc. Impress the hell out of them and they will trust you with your next venture.
Bob is currently the CEO and cofounder of Teleport App, which gets your friends delivered through Uber’s API. He was previously the lead partner for Social Starts, a seed-stage VC fund that invests in companies like Mashable, Boxed, Greenhouse, SimpleReach, and Grovo. In his free time he teaches financial literacy to high school students through Junior Achievement (JA).