An entrepreneur’s most valuable resource is time. Starting and building a company puts extreme stress on the ability of anyone to manage all the different personal and professional responsibilities involved. There just aren’t enough hours in the day for most entrepreneurs. At least that’s true for most of those who are successful.
With all of the demands on an entrepreneur’s time, wasting time is about the worse thing that can happen. Unfortunately, one of the biggest wastes of time for entrepreneurs is chasing after investors who aren’t interested. I have been a professional investor for most of my career and involved with over $6 billion of private investments. One of the things that I always saw separating a good entrepreneur from a mediocre to bad one is the ability to quickly understand which investors are worth the time to chase after and which aren’t. This is a skill that usually takes time to develop. Most younger, less experienced entrepreneurs don’t have it. Of course many experienced one don’t have it either, but they have no excuse except their own lack of ability or effort to learn from their mistakes.
What are some short cuts for an entrepreneur to quickly determine with a high degree of confidence whether or not an investor is truly interested or is just wasting your valuable time? Here are few simple rules that should help.
1) Do you have a strong personal relationship with the investor? If the answer is no, it is already more than likely that they will not invest in your privately owned company unless you came highly recommended to them by someone with whom both of you already have a strong personal relationship. Many people in today’s frothy market will question this rule. In an overheated market, this becomes less true than in a normal or depressed market, but it is still true more often than it isn’t. The single most important factor in whether or not an investor is truly interested is the strength of personal relationships either you have or someone you know has with them. Don’t forget this one. You will regret it.
2) How quickly does the investor want to talk to you or meet with you? The more anxious the investor is to talk to you or meet with you, the more likely they are to invest. This may seem obvious, but many entrepreneurs get distracted by investors who give them excuses that they are too busy. Don’t believe this. If they really want to invest, they will make time in their schedule. They are too busy because they aren’t really that interested. Don’t believe the excuses.
3) Does the investor reschedule or delay a scheduled call or meeting? If they reschedule even once, the chance that they will invest is substantially reduced. Also, the farther in the future that they want to reschedule, the less likely it is that they are interested. Again, this may seem obvious, but too many entrepreneurs believe the excuses of last minute emergencies and assurances from the investor that they are interested and something unforeseen just happened beyond their control. These excuses are usually just ways of putting you off. Once in a while something really does happen that requires an appointment to be moved, but usually it’s just part of the process of blowing you off. If the investor were really interested, they would at least get on the phone with you for a few minutes and apologize to you for having to move the appointment. It’s much easier to lie if you don’t have to talk to someone, which is why it’s much more likely to be a blow off if they don’t even tell you directly that they need to reschedule. If they reschedule more than once, it’s pretty much guaranteed that they aren’t interested.
Why do investors play these games rather than just saying they’re not interested? As a professional investor for all those years, I can tell you that it’s not just because they are cowardly, lazy, or evil. A lot of it has to do with how the investment business works. You need to look at a lot of deals to find a few good deals. At any given time, you are looking at lot more deals than you will actually do.
Depending on what happens with certain other deals you’re considering, or what happens with how much money you have at a given time, an investor’s desire to invest in a given company may change. Further, investors may change their mind about investing in a company after they do some more due diligence or research on it or talk to other people they respect about the company. When this happens, they usually don’t want to come out and tell the entrepreneur that they changed their mind and are no longer interested. Any good investor knows that will lead to an extremely uncomfortable conversation and probably the entrepreneur trashing them to anyone who will listen. It’s much easier to just keep putting it off and hope the problem goes away on it’s own.
Yet another possibility is that the investor is waiting to see what happens with the company a little longer before making a decision. In that case they are putting you off until they see something happening with the company that they view as creating a sense of urgency to invest right away. This is why a good entrepreneur always creates something that seems like a sense of urgency about investing. It could be that the valuation is going up, the round is closing, the company is about to close a big deal, growth is exploding, or whatever else is possible.
CapLinked is actually creating a simple algorithm and widget on our website that will calculate the probability that an investor is blowing you off based on a few simple criteria. This should be rolled out for testing in the next few weeks. Stay tuned and we’ll let you know when it’s ready for testing. Hopefully it helps save entrepreneurs some valuable time in the future.