Think Investors Care About Your Idea?
“Investors invest in people, not ideas.”
You’ll hear that advice everywhere as a founder. And for good reason — it’s usually true.
Founders tend to fall in love with their ideas. It’s hard to stay objective and see the project clearly. They imagine this idea is going to end up getting them on the cover of Wired, spinning ideas with Elon Musk and partying in a Vegas penthouse.
But an idea is worthless if you can’t execute on it. And it takes a talented and dedicated team to make even the best ideas happen.
Investors understand that, so they aren’t just looking for a good idea. You obviously need both, but professional investors are experts at assessing risk, and most of the risk is in execution. They’re looking for business opportunities with smart, confident people who can make a company successful and generate the return they, and their own investors, need.
Truthfully, investors can’t always tell if a founder will be able to execute on their idea.
Most entrepreneurs think their idea has to be so good that investors decide the opportunity is a no-brainer. They’ll whip out their checkbook as soon as they hear it. And yes, an idea has to be fundamentally sound.
But in reality, investors are interpreting your perception of the opportunity.
That’s because the risk for investors isn’t necessarily the concept — it’s the people executing on the plan. A good idea backed by an insecure team isn’t going anywhere. And that’s where most companies run into trouble. They spend too much time jawing about the idea when they should be highlighting the competence and the confidence of their team.
Investors know ideas don’t get tired. A concept can’t doubt itself or go through a crisis at home. It can’t rally when things get tough or stay dedicated despite terrible meetings. The idea is not the risk or the reason to invest. That comes from the people behind it.
You’re not just selling an idea, you’re selling a relationship.
Founders tend to convince with their concept. They talk about the idea and show off their deck like it’s going to change the world.
Investors aren’t interested in funding pipe dreams. They want to see a legitimate business opportunity and a team that can back it. They want to know they can work with your people and develop a relationship with them. Ultimately, that’s what matters. More than any presentation or idea, they want to know if the team has what it takes to see the venture through.
So, selling investors on your company is like selling anything else. You don’t lead with the attributes of what you’re selling. You lead with the relationship. Think of a realtor who really wants to sell you a house. They’re going to spend a lot of time asking about you personally. What do you do for work? How old are your kids?
In the same way, investors don’t tell me my idea is so great they just have to invest. As far as I can tell that’s never happened to anyone. They tell me my team is impressive and worth backing. And that’s a great spot to be in for more than one reason.
Most dollars go towards the team.
Top talent is not cheap. You have to pay to get it.
Sometimes, investors comment on how high my team’s salaries are. When this happens, I sort of jokingly ask how much they make.
Whether or not they choose to answer, I ask them, “Who’s working harder right now? You or my team?”
That usually draws out a laugh and stops the commentary. They understand that talented people can command market compensation in a lot of places, the dream of million dollar equity paydays isn’t always enough. Startups take years to run up, and folks move around a lot these days.
Professional investors will expect you to pay your team. They’ll want you to hire talented individuals who know what they’re doing and will add value to the company. These ventures are difficult, and they understand it’s the people who eventually cause them to succeed or to fail.
That’s because a weak team can’t be saved by a great idea.
The accomplishments of your team can make up for a lot of weakness in your strategy or your ideas. It doesn’t work the other way. If an investor is going to find a problem with your company, it’s not going to be in the presentation you showed them. All your research and materials should be airtight.
If they find a weakness, it will be within your team.
When they sit each person down one-on-one and start grilling them, that’s when they’ll smell doubt about the project.
A smart guy once told me that startups come down to bandwidth and execution. Do you have enough people on your team to be able to deal with the demands of what you’re doing? And are they smart enough to execute it? Do they have the perseverance to see this through?
Because if they don’t, it will be obvious. And at that point, it doesn’t really matter whether you have a great idea or not.