Startups exist in a symbiotic relationship with venture capital. Neither can exist without the other.
The difficulty for most founders is understanding how a VC may view their company. I spend most of my time speaking with VCs learning exactly what they’re looking for in their portfolio companies, check size, vertical, stage, etc. Overtime, it’s become apparent there is quite a split in a founder to investor mindset. Below are five ways VCs often think completely differently than founders (and how founders can win them over).
Potential vs. Risk
An entrepreneur thinks about the potential and opportunity for their business first. They take a giant leap of faith that they can solve a problem they see and that it will result in a business model that works. The difference is a venture capitalist tends to think about the biggest risks for a business first. When you’re pitching your business and during ensuing conversations, a VC is playing detective — searching for clues and staying neutral until they have built up enough supporting data to form a strong point of view.
Optimism vs. Skepticism
Most entrepreneurs are naturally optimistic, sometimes even to a fault, about the future because of their “believer’s” mindset. An investor looks forward with a healthy dose of skepticism because they understand costs, roadblocks and that the time required to see success will likely be far greater than even the most successful entrepreneur anticipates.
Edge vs. Outcome
An entrepreneur’s mind centers around their team, product, customers, growth and maintaining a competitive edge most days. An investor focuses on the speed of learning, progress, financials and the potential outcome most days.
Deep Understanding vs. Broad View
An entrepreneur has a deep and focused understanding of their industry vertical, the stage of their company, and is focused on developing a detailed strategy to reach success. A venture capitalist has a broad view of various industries and stages of companies, focusing on the macro patterns and behaviors that lead to success.
Deep Emotion vs. Grounded
An entrepreneur is all-in on one business. They live and breathe this business daily and it can mean a deep emotional connection to what’s happening in the business. A venture capitalist has a portfolio of companies they support and they expect that only one to two of their investments will be a breakout success. Because of this, a VC maintains a more surface level and less emotional connection to the business which tends to bring a more grounded point of view at critical moments.
Now, what to do with all of that. VCs are more skeptical by nature and have risks at the front of their mind. Your job as an entrepreneur is not to wow them with impressive figures but, rather, show them how you plan to keep everything (their money) safe and minimize problems.
BOTTOM LINE – Take a look at your business from the skeptic’s lens and spend time derisking your business with facts, supporting data, and industry research. Address these head on when speaking with investors and show them you’ve not only done your homework but that you have a solid plan, backed by data to overcome potential risk. Your chances of success in raising capital will increase considerably.