Updated: Mar 30, 2021
Many investors invest in startups where success seems inevitable. Success seems inevitable when founders have a clear sense of where they are going and are committed to getting there regardless of the circumstances. Said differently, investors invest in resourceful founders - they want to know that when things get difficult or go unexpectedly, you will not be discouraged, you will adapt, and you will remain determined to achieve your goals.
Making success seem inevitable starts with a clear Definition of Success. A Definition of Success explains 1) what you are building, 2) where you are going in the next 1 year, 3 years, 5 years, et cetera, and 3) how you know/measure that you are getting there.
If you are confident about where you are going, it becomes clear what resources will help you get there, and investors will view their investment as a logical part of your company roadmap.
Being honest about your stage, and what you’re uniquely good at
Many investors lose interest in a company because the founders claim to be further along than they are, or are not focused on the most important milestones for their stage. This makes investors doubtful about the entrepreneur’s honesty or judgment, and makes the company seem risky.
Matching your message and metrics to your stage
Being honest about your stage allows you to explain your company in a way that investors understand, and helps you and the investor agree about the bets you are asking the investor to make. Martin Casado from a16z articulates company stages, and what he looks for in each stage:
Team: Pre-product in market. The investor is betting on the team. Show why the team is right for the opportunity.
Product: Post-product creation. The investor is betting that you have found product-market fit. Show real adoption/traction metrics, not one-off customer quotes.
Repeatable sales: Many similar customers are purchasing. The investor is betting that you have a large pipeline, and can grow the pipeline. Show sales cycle, and your sales pipeline or revenue backlog. Show that you can reliably create revenue.
Unit economics: Widespread product traction. The investor is betting that you have a good gross margin and can scale profit/EBITDA. Show that your revenue can go up faster than your costs.
Showing that you know what you are good at (and what you aren’t good at)
An investor doesn’t assume you have it all figured out. They are betting that you are aware of your “winning edge”, or your unique value drivers.
Value drivers answer the questions, “If you were to compare yourself to a similar company in a similar stage, where do you win?”
For example, an early eCommerce company might characterize their value drivers as:
Large influencer bench, uniquely skilled at driving sales through affiliates
Influencer / affiliate campaigns drive long-term customer acquisition
High conversion vs. industry standards
Strong brand authority in noisy market
Market leader in lower-price fashion
High revenue to headcount ratio
An investor knows you can’t afford to do everything, so communicate that you know which activities drive the most value, and that you’ll do everything to ensure their capital supports those areas.