When asked “What is first thing that you consider before making an investment in a tech startup?”, many seed investors, including myself, give the cliché line “It is the entrepreneur.”, but it is unfortunately the truth.
It is a privilege to talk to over 450 startups in 1-1 free advisories at AGA and hearing another 100 or so who sought seed funding with Tri5 Ventures. But honestly, I sometimes dread hearing the same old drone of pitching by entrepreneurs with the same verticals, similar ideas, and go-to-market plans. Don’t get me wrong. Pitching a business plan is necessary to understand what you are proposing, but what one doesn’t realise is the key point is you, the entrepreneur, is what counts.
My mandate is investing at the seed level, which startups have just developed an MVP and gaining beta traction. This is a much higher risk level than Series A funding, given that there aren’t much historical results to put financial ratios to it and analyze. And plans, being plans, are just … plans.
Nothing in the plans are ever concrete unless there are firm agreements for potential partnerships or sales agreements. Before Series A, plans are rubbery and pivots common, so plans aren’t the best consideration for an investment.
In the mind of investors
If you are thinking that I am listening to your proposal, that is a half-truth, and here are some possible questions that go through my head:
- What is this guy dreaming about? What is his big vision like?
- What is this guy’s background? What drives his innate calling to entrepreneurship?
- Is this guy for real? Can he really carry out what he wants to do?
- Can he rally talented people and resources to his cause and deliver?
- Has he failed before? What lessons have he learned?
- Am I mesmerised by his dreams? Has he excited me and rallied me to his cause?
You are the man
Always remember, the entrepreneur is the leader of the venture.
He rallies all the stakeholders, including investors, to join him to build something great. Take Patrick Grove’s case, who truly deserves his successful exit to REA group. He has been a great interesting character in the startup scene since 2000 and now truly a hero for us to respect.
During the Catcha.com IPO on SGX in 2000, he was a mere 25 year-old who managed to mesmerise the who’s who in Singapore. At that time, I remembered attending a dinner with UHNW individuals and Catcha.com was on their minds. All were clamouring to invest in Catcha.com and some even said how a young upstart would not give them privilege to invest in him. He obviously had something in him that even seasoned businessmen wanted as a part of his business.
Back to you: can you truly be that inspirer that can even convince the most experienced to be part of your vision? From the start, you should be the one in charge and not sound like a grovelling beggar asking investors to hand you money. Instead, they should be clamouring for you.
Picking up from failures
“There is nothing called a failure, just a learning step towards success,” a mentor of mine once told me. For Grove, the Catcha.com IPO in 2000 didn’t surface due to the dot.com bubble burst. And despite that, he pivoted Catcha to a traditional magazine business and succeeded.
He didn’t cry over spilt milk of the biggest IPO he could have done in 2000. He learned and move on and succeeded.
I had advisory sessions and investment pitches where entrepreneurs speak about their past failed businesses and somehow haven’t picked themselves up. They sound bitter on how life swung a curve ball at them. Maybe they are seeking assurance or an answer to what has happened and thereafter ask me to be their mentor when I give the advice to move on. Mentor? A shoulder to cry on, maybe.
But seriously… Wake up! Investors are looking for entrepreneurs who learned from their experiences and not seeking failures staying at failures!
Be serious and focused
One thing that I really dread is after hearing a very motivated individual and mesmerised by his business plans, I hear that the entrepreneur or his key co-founders are taking this part-time or dabbling in a few other businesses at the same time. You may be surprised but it seems to be a common trait among Singaporean startups.
How on earth do you expect me to put in an investment when you are only working on it 30 percent of the time? A common answer I get is that, “I cannot survive on the investment and thus need to have a job or other businesses to sustain me or there is not much work to be done at this stage while waiting for things to mature.” Another common answer I get would be “We want to see if this works before we decide to go full-time into it.”
That already speaks of his ability to organise and also how serious he is in his startup. My advice: if you are unable to handle your personal finances and dealing with other issues, it is best not to seek out investments until then.
There are many factors for an entrepreneur to succeed in a business. But at the very core of it all, entrepreneurs need to remember that they are champions of change, value creators, charismatic leaders, and visionaries. They dictate how things lead. Investors are just part of the many supporting factors to that success which follow the lead of the entrepreneur.
So for me, back to the drone of listening to more run-of-the-mill business plans… or am I ready to idolize an exciting visionary who is going to get me to scream and clamor to invest in his startup?
* This article is written in mind for all aspiring entrepreneurs who are seeking pre-Series A funding and below.
This article is the eighth of the ‘Startup Advisory Clinic’ Series.
This article first appeared on Tech in Asia.