What Tech Investors Want (Part 1 of 2)

Part I: The Four Pillars of Startup Success and How to Navigate the Investor Meeting

During the late 90s, great ideas were all the rage.

While investors were used to modest returns on traditional investments, the rapid growth of the tech space promised something much more enticing: massive returns from companies built on the premise that their one brilliant idea would catch on like wildfire. Dell Computer Corporation saw a 91,863% rise in stock prices from 1989 to 1999. Microsoft, fetching a split-adjusted price of $1.21 in 1989, skyrocketed to $120 a share a decade later. Meager investments could literally bring in millions.

Then, the bubble burst in 1999 and again in 2008.

While the tech space became an investor wasteland immediately following the tumbles, a new group of investors eventually emerged, sparking the evolution of the investor/startup relationship into what we see today. Tech purists – those in pursuit of “tech unicorns” – are now joined by the conservative investor – those interested in tech center growth, but need much more than a good idea to turn over their money.

So what is now required of startups before they reach one of the outcomes that constitutes success in the tech space? And how can they adapt to what today’s investors are looking for?

Tech scene establishes fourth pillar for reaching success

As someone who has seen the tech space transform and become increasingly saturated with startups, I can say with certainty the requirements of being a successful player have changed.

In the early days, a great idea was plenty. Then, you needed both a great idea and a product. Shortly after, a third requirement emerged: having a solid team to bring everything to fruition.

These three pillars – the idea, product, and team – would, at one time, create a clear path to success. In this case, success means one of three things:

Stand-alone profits are created. (You built a product, users were brought on board, and revenue exceeded expenses.)

Investor support is received. (You closed an investment round -- or the next investment round -- and an influx in funding created growth.)

Exit money is handed over. (You sold what you built at a profit.)

But with competition on the rise, there’s now another essential pillar to establish before success can be reached: acquiring users or clients and/or growing revenue – or both.

Being able to point to an established and growing user base is required proof your product’s staying power. And while many hopefuls dream of hitting the viral lottery – launching an idea that suddenly attracts millions (OR BILLIONS - read with your pinky finger in your mouth like Dr. Evil) of users – that overnight success story is rare. We’ll discuss in part II of this series how building this user framework can be achieved.

But first, how can you land investor backing after establishing these four pillars?

What will keep you from getting laughed out of an investor meeting

After completing the rigorous work required in building out an idea, gathering a competent team, and creating a user base, the investor meeting might seem minor in comparison. The reality, however, is this is where startups will veer off into nothingness or success.

With the oversaturation of the market, investors aren’t looking for reasons to invest in you – they are looking for reasons not to invest in you. They don’t need more amazing ideas; they need to pare down the playing field. Part of that is ensuring you have established your four pillars and marked off these additional boxes:

• You have the right kind of debt and ownership percentages
• You know your numbers and are able to present them effectively
• You are dressed appropriately (Side note: Startup gear doesn’t make you look more authentic.)
• You present effectively, using the right language
• You have your legal affairs in order and have terms outlined correctly
• You are able to address and soothe potential investor fears
• You have all pertinent information memorized and ready

In my experience, the chance a startup will achieve success isn’t a complicated equation of odds. It boils down to this:

• Have you established all four pillars before stepping into the investor meeting?
• Have you checked off all the boxes to ensure the investor meeting goes off flawlessly?

A success story worth mentioning

As a startup mentor, I’ve seen my fair share of brilliant ideas – some of which have quickly flopped and others that have been accepted by users and investors alike.

One such team I worked with – three women with little or no business experience were determined to launch a virtual home design product. Their idea was solid, but their business and marketing skills were undeveloped. A lucky break on a nationally syndicated TV show gave them exposure but not all the investment they needed, they went back to the drawing board and worked tirelessly to perfect every aspect of their business from the product to the marketing.

They put together the single best, most visually appealing investor deck I’ve ever seen in my life. But they didn’t have every detail of their financials memorized and were turned down.

So they went back to the drawing board again.

This time, their CEO was determined to give investors exactly what they wanted to hear, essentially building her business and negotiation skills as she went. After landing a connection with top Silicon Valley contact and checking off all of their boxes, they returned to the investor circuit. The result? They were able to secure commitments from multiple investors, allowing them to increase their ask three times in the process.

How did they manage it?

They had a great idea and product, built a solid team, garnered users and revenue, and checked off every single box investors are looking for.

It’s not easy, but yes, it’s possible.