The Entrepreneur Insiders 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 for young startup owners to develop relationships with angel investors? is written by Tom Schryver, lecturer of management at the Johnson Business School at Cornell University.
Angel investors are critical to the startup ecosystem – individuals willing to put the first round of funds into a young company, as well as investments of their own time and networks to help new ventures succeed.
From the entrepreneur’s point of view, the first challenge is finding them. Many communities have active angel investor clubs or networks as well as startup communities where entrepreneurs can share their experiences – business incubator meetups, networking events, or young presidents organization meetings. These communities are critical to startup success. Other CEOs that have been down the path recently can provide valuable guidance on what worked, what didn’t, and how to avoid potential land mines. More important, entrepreneurs with existing investor and advisor connections can help by providing warm introductions. The foremost rule is allowing yourself to become known. Be present and be willing to talk about your company and your idea. Don’t pass up opportunities to meet new people who can help.
Once you have the attention of one or more potential investors, how do you engage them in the hope of ultimately securing an investment? To understand how to approach them, you should first understand the perspectives that good investors share.
A smart angel investor, like a venture capitalist, will know that there is a good chance that an investment could be totally lost. That’s ok, because investments that make it make up for those that don’t. As one investor once said to me, “they care more about making sure that they can ride a great investment from a five to ten times return than avoiding ones that goes from one to zero.”
See also: Here’s How To Approach An Investor
This mindset has several implications. Most objectively, it means that opportunities need to be large enough – market size matters. Solving compelling problems that few customers have, or solving minor problems for lots of people isn’t good enough. However, potential market size is just table stakes; it gives you a chance to play, but then the hard work begins.
And the work of building something big is hard – even companies that look like overnight successes are actually built on lots of grinding and hard work. It’s not enough to be a ‘wantrepreneur’ who’s more enamored with the idea of having a startup than actually building a successful business. It’s often said that good investors invest more in teams than ideas. That’s true: strong teams will have the grit to see things through in the face of adversity. Reaching orbit takes a ton of activation energy.
That said, persistence is a double-edged sword. Experienced investors and entrepreneurs know that the path of every company is littered with “unknown unknowns” that will become exposed through the journey. How the an entrepreneur and their team deals with those new findings is critical. Will they be open to new information and select the right times to adapt and change and the right times to stay the course? Or will they behave, as Stephen Colbert once described former President Bush at the White House Correspondents dinner, as a man who “believes the same thing Wednesday what he believed on Monday — not matter what happened Tuesday.”
Grit and persistence are great, but only when balanced by a ruthless pragmatism fed by a constant flow of new information.
The good news is that there’s a method of showing potential investors that you have these characteristics. Even better, it’s a way of differentiating yourself versus the vast majority of other entrepreneurs competing for attention. Best of all – it’s easy.
The best relationship-building entrepreneurs I’ve seen have one thing in common: a regular, consistent, honest company email update sent to advisors and potential investors. Frequency doesn’t matter (monthly is fine); nor does length – a page will do. But consistency does. These updates are a way of conveying what’s going on with your enterprise – what happened, what you’re about to do, what new information you’re gathering about your opportunity and what it means for your strategy. But most importantly, it’s a way of showing that you consistently do what you say you’re going to do. That, more than anything else, is a critical differentiator: showing yourself to be a reliable leader who is capable of making consistent forward progress, day after day; that’s how fortunes are made.