[YS Learn] LetsVenture founder shares what investors look for when investing in a startup
Shanti Mohan, Founder, LetsVenture | Image credits: Entrepreneur Cafe
Startup pitches are generally closed-door sessions where the conversation between the founder/s and investors isn’t public information. While reality TV series such as Shark Tank introduces to a version of what pitches look like, a real pitch away from the cameras is far more nuanced.
Before the pitch, several questions need to be addressed. What makes the investor sit up and take notice? What makes them decide to meet you again and possibly fund your idea?
Explaining the basic dos and don’ts, Shanti Mohan, Founder of LetsVenture – a platform that aims to make the fundraising process (both early-stage and growth-stage) easy, efficient and transparent for both startups and investors – tells YourStory that it all begins with the founder’s clarity of thought. “It’s about how well they see the space and opportunity,” says Shanti.
What is the story?
Talking about what she looks for in a pitch and what angel investors seek, Shanti says that
storytelling is innate to human psychology as people buy into stories. She says it is the tenant of social interaction of human beings.
According to her, when you are looking to raise funds, you need to become a better storyteller.
“At the end of the day, the investor buys into your story. When I do angel investing, 10 percent focus is on gut feel, as nobody knows in those early stages. It is about how convinced you are about the guy who is selling the story. How well he can say what he wants to solve? What is the story behind it that matters the most?” explains Shanti.
Shanti advises founders to bring in clarity of thought while pitching.
“It is about the ability to understand the space and is they have really thought through their idea. For me. the angel investments that have done well are the ones where there was complete clarity of thought in the founder,” says Shanti.
She adds that business environments change rapidly, and what stands out then is the founder’s ability to gauge the change, and the clarity towards their vision and the way they are steering the organisation.
“And all this happens only when you believe what you’re building and how you align the team to the vision,” she explains. The founder should have the ability to think through a particular problem and approach it in a systematic way.
“Have they gone back and spoken to customers? The process of coming to the point that the idea is ready to become a business is very important. Don’t build a product without speaking to customers and put your finding in your pitch deck,” Shanti advises.
Recounting her experience, Shanti says she has encountered startups that have decided to build the product without speaking to the customers.
“How do you build a product without talking to people? There are still people who haven’t gone and identified their particular set of consumer. They will broadly say that all HNIs are our customer. Can you do user profiling? These are the basic fundamentals of building a company,” she says.
“How deeply have you understood the problem you are solving? As an investor, if I ask you a question about your product and customer and you don’t know an answer to your product and market, it is a little worrying. If you are 24x7 focusing on the idea and I can stump you with one question, it means there are gaps,” Shanti points out.
Explain why you are doing what you are doing
It is important to be aware of the problem you’re solving. Sometimes what may seem like a great idea may not have a large enough market or name, or it may not be a problem that people are willing to pay for.
“Don’t build for problems where nobody is willing to pay for the solution. You need to have some visibility to monetisation. Who am I creating value for and who will pay for this? These are the questions that the entrepreneur has to answer,” says Shanti.
Clearly define your core founding team and assign who does what when you start raising funding. The team is super important. Shanti explains that one of the biggest reasons for startups ending – other than a lack of funding – is co-founder conflict. Find the right set of people to guide and run your vision. She underlines that not everyone knows everything.
“Always make your vision bigger than you. As a founder, you need to be cognizant of the fact that you may have missed some things. If you don’t know the answer to something, be honest – say look up and come back, and follow up with an articulated response. Sometimes people need a little bit more time to think through it,” says Shanti.
Need for all kinds of investors
Shanti explains that there are visionary investors who look at the big picture, ask you the deeper questions, focus on your vision, and ask you how you are looking to change a space. They hardly look at the numbers or the presentations. They will see how you respond to a volley of questions and then make a decision.
On the other hand, she says, there are investors driven by the mission, who already have an idea and intuition, and has decided that they want to invest in you and need numbers to prove their desire to invest in you. Such investors are looking for different reasons to back their intuition.
You will need both kind of investors at different stages in the organisation.
Be a part of the fundraising process
Every founder must embark on a fundraising journey of pitching to an investor, whether they need the funding or not. The process of fundraising and actually taking the funds are two different things. You don’t have to accept the term sheet every time.
“The kind of advice or perspectives you will get when you ask for money is very different from the kind you will get when you seek advice. When somebody is writing a cheque, they will look at it differently. I have personally added new business lines and ventures for LetsVenture because investors give you examples. People will come up with ideas that you wouldn’t have thought of.”
While every idea or thought may not be feasible to invest in, she says a founder needs to listen to different ideas and opinions. And that is what the journey of raising funds helps you understand. “You get some of the best advise then,” says Shanti.
Shanti adds that the minute she realises there has been an ethical question or the founder has been dishonest, there will be a problem.
“Humility and honesty is everything. The startup ecosystem is small, and networks are important. You cannot isolate yourself or the people around you. If you have been dishonest, it puts everyone off,” says Shanti.