Two way street

You have to kiss a lot of frogs before you find your prince when it comes to securing a financial backer. Getting in front of people to pitch, the intense scrutiny, and the countless rejections you receive before you get investment – if ever, all make it a hard knock life out there.

There are two sides to every story, and I have been on both this year, investing in several businesses while raising money for a new software product launching next month.

Most investors, certainly angels, are successful business people, and probably entrepreneurial at that. They usually understand the trials and tribulations of running a small business, the need for finance and how hard it is to get. Nonetheless, no investor is a charity. If I am to invest in a business then I want to ensure the team is a good one, the idea is sound and there is a clearly defined revenue plan. If any of these don’t stack up then I would be foolish to invest.

Being an entrepreneur looking for investment though is tough. Finding investors is too hard, and there is no magic bullet. Investment groups can help, but you may not have the money to access them. VCs often won’t talk to you without you being recommended first. Angels seem to be hidden from view. Once you do get to pitch, it’s not always clear what’s expected as different people look for different aspects. Then, if it all goes belly up, you’re often left not knowing why you’ve failed – feedback is minimal at best.

There are four main lessons I’ve learned from being on both sides of the table that I’d like to share with you. Here they are:

Investors need to be visible, and entrepreneurs need to take the time to network. A good investor will get out and spend time among entrepreneurs to find good investments. Entrepreneurs need to go to networking events, build a network and ask that network for introductions.

Investors need to be clear on their criteria and amounts. Entrepreneurs need to look at these criteria and, if they meet them, tailor their pitches accordingly.

The best business relationships are based on open, honest conversations, all undertaken politely. Investors need to be helpful; entrepreneurs need to be honest enough to ask for advice. A good investor will seed the community with help and advice. A good entrepreneur will accept that it is unlikely he knows everything, will consider the gaps in his armoury, and seek and listen to this advice. The “pay it forward” principle is the key here.

A good investor will ask questions to inform rather than to belittle, and will provide clear, honest feedback. A good entrepreneur will listen to questions and will seek to answer the point made in detail. He or she will learn to improve the business or a subsequent pitch.

Having seen investments from both the investor’s and investee’s perspective, I know how much better it is for both parties if these principles are followed. I hope I am a better, and more humble, investor as a result of my recent fundraising activities.

I was born in Japan and the most important principle there is “loss of face”. Don’t make anyone feel they have lost face and you’ll probably succeed in the end.