So much of understanding how to attract funding boils down to understanding how investors evaluate an opportunity. It’s a lightning quick process (relatively speaking) based on very few data points.
Think about it. A couple weeks to decide whether you want to put many thousands or millions of dollars into a company and founder you just met is pretty damn quick. Depending on how early the company is, you also have to layer on blind spots like limited or non-existent product, customers, and revenue. So how on earth do investors gain the conviction to write these risky checks?
Intuitive Pattern Matching
Of course investors will evaluate the things that are tangible and measurable. Looking at market size, consulting with industry experts, speaking with references, etc. are all big parts of the process. That alone is not sufficient though.
Here is where those amorphous factors come in. Some call it gut feel, instincts, or plain genius (depending on level of arrogance). I think it’s a bit more discrete and instead refer to it as implicit pattern matching. As opposed to explicit pattern matching like targeting teams that have worked together before, valuing entrepreneurs who have failed in the past, or maybe avoiding teams with more than 2 co-founders, implicit pattern matching is the positive or negative feelings one gets from hard to isolate interactions.
There is a sense you get when you talk to founders worth investing in. Their faces tell the story of someone who knows a problem space cold. Emails that are sent by entrepreneurs whose time is limited sound a certain way. Diligence questions get answered with a distinct cadence by founders whose primary focus is managing their quickly growing business. Communication from someone who knows they have their pick of multiple investors has a particular timing and quality.
Because that intuitive pattern matching is more difficult to translate into a specific set of things you should do, I encourage founders to adopt a confident mindset that their company IS amazing, they ARE a hot investment opportunity, and if someone says ‘no’ they’ve missed and you don’t care because there are 100 other firms that will be interested.
This is not a "positive thinking creates positive outcomes" recommendation (although there is some of that). The primary effect that I want this mindset shift to have on entrepreneurs is helping them more naturally interact with investors in a way that aligns with positive pattern matching and drives interest + desire.
I fully acknowledge there is a bit chicken or egg question when it comes to this mindset. Are you an awesome company and because of that can adjust your mindset to meet that reality or are you adjusting your company to help you produce the right mindset? It doesn’t matter to me. Both get you to where you need to be to execute a successful fundraise.
There are unfortunately too many examples of incredible entrepreneurs I’ve helped who were intimidated by the process of raising capital. That mindset caused them to be timid, reach, oversell, and other things that don’t pattern match with great investments.
For this story time I’ll cover the opposite an example of a natural “be chased” mindset.
A founder I’ve been helping just concluded a very successful fundraise. Over the course of our time together, he made amazing progress around becoming a more natural fundraiser. One area he naturally excelled was in his calm and confident demeanor that screamed “you should be chasing me.” This wasn’t arrogance. He just knew what he knew, was ok with not knowing everything, and had a strong belief that his company’s approach was different.
The clearest example was in how he reacted to competitors possibly learning about his company during the fundraise process. One firm told me they invested in another startup in the space that could be competitive and that I should check with the CEO first before making the intro.
“No problem at all. I’d love to hear what they think about us!”
When we were considering corporate VCs in their space, I mentioned he should be aware that they could easily share info about his company with their internal teams. Do you still want me to send the deck to them?
“You can share our deck with anyone. Having our deck won’t let anyone compete with us.”
I loved his mindset when it came to this and told him how refreshing it was. He didn’t realize it, but investors loved his openness. It showed a confidence that made them want to learn more.
It made him be chased.