As a start-up looking for seed or early-round capital, you should avoid both "tire kickers" and "information/idea seekers" in the process even if you think it could serve as additional experience or networking. After spending many hours building a qualified investor list, nothing could be more frustrating than having an investor (angel or VC) waste your time and, more importantly, your resources.
However, tire kickers can pose much more long-lasting negative risks to your investment seeking process including losing the legitimate investors along the way. So, to avoid this, it is critical that you recognize who is legit and who is not.
The following are four techniques that you can execute that helps deter this possible liability in your investment deal process. Again, your goal is to spend 99% of your time in quality conversations with the right, pre-qualified investors.
1. Review past Transactions/Investments:
Most investors do not mind talking through their past successful deals. Approaching every investor with the same goal of eliminating tire-kickers or information/idea seekers sets the tone early in your conversations. So, ask for details of past transactions, investments, or even consulting contracts with other start-ups that the investor has been involved in. All sophisticated investors should have at least one of the following apply:
2. Build a Quality Teaser:
As we have previously seen, one of the most important steps to eliminate tire kickers from your process is to build high-quality teasers on your business. A strong teaser is defined as straightforward and informative. More sophisticated and discerning capital providers are wary of sensationalist and promotional material, and will often discount valuable deals if they are advertised excessively. If you build your initial potential investor list with your ideal buyer in mind, it is much more likely that your process will be clean and precise.
To ensure your teasers are high-quality, you should avoid:
3. Keep Notes on Relevant Investors:
One of the best ways to prevent tire kickers or info seekers from slowing your capital deal is to prevent them from ever learning about your company. If you mass distribute or broadly auction your opportunity, the probability of attracting partial interested investors is significantly higher.
Quality of your investor contacts, not the quantity, is what you need to focus on right out of the gate. It is critical for any business or start-up to have relationships with potential investors and to fully understand their expectations and interests. Keeping track of the interests of your potential network of investors requires detailed notes on all of your connections that specifically fits your expectations as well (move fast, has contacts, brings experience to the table, etc.).
4. Prepare and then Communicate:
No matter how well you write your teaser, deck, and/or company intro-video or keep notes on potential investors, some less than "tire kickers" seem to always creep in the process. Every business owner needs to have the objective of identifying and eliminating from conversations as early as possible. The best way to do this is through experience, preparation, and validation. While early-stage preparation and planning may seem lengthy and unnecessary at the time, it can save you tremendous time later and assist in your credibility with the true investors that are interested in your company.
Preparation can take on many legs including so get organized on what you want to ask to your vetted list of qualified investors. Your question list should produce productive answers in helping you further qualify an investor. Lack of engagement, slow to return emails, voice mails, and weak questions are all red flags that the investor might just be a tire kicker.
Another approach is including a cover letter in front of your NDA outlining the type of investor you are looking for and your investment stages before going to a Series A financing. If this approached is used, it is critical that it is professional, straight-forward, and non-offending. Info/idea seekers and tire kickers will often indicate interest early on but later back out once the specifics of the investment is known. Having a cover sheet to your NDA is an easy way to document your expectations right out of the gate. Some investors will request a formal introduction which is usually a 10-30 minute conversation. Make sure you take this opportunity to ask questions as well. Remember that your due-diligence on potential investors is just as important as their due-diligence on your company. Asking the right questions and outlining your fair expectations equates to credibility and raises the possibility of your opportunity to be shared within the investment community.
By following these four guidelines, you will increase your deal speed, close more deals, and build lasting relationships for your future ventures.
MP, LLC credits blog post with the original author and links (if available).
Scott E McGlon is the President of McGlon Properties, LLC and the author of many blog posts on MP Blog. He has been a serial entrepreneur, entrepreneur-in-residence, investor, and president/CEO of many successful start-ups since 1998.
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