Disclaimer: this is a rant piece aimed at entrepreneurs, especially Indian entrepreneurs.

Now, since you’ve been warned about what’s coming, let me start with few scenarios where an entrepreneur meets an investor(s) and its outcome that follows.

SCENARIO #1. Entrepreneur gets an email from an investor for a possible meeting (either on phone or F2F) about investment opportunity in his idea/startup.

SCENARIO #2. Entrepreneur reaches out to an investor for an investment in his idea/startup.

SCENARIO #3. Entrepreneur gets introduced by a common party to an investor or vice-versa for an investment possibility.

All these 3 scenarios are the most common form of meetup between two parties, commonly known as entrepreneur and investor. These two parties can also be considered as a classic case of demand (entrepreneur) and supply (investor a.k.a. capital) to make it more interesting.

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SCENARIO #1. Entrepreneur gets an email from an investor for a possible meeting (either on phone or F2F) about investment opportunity in his idea/startup.

MOST LIKELY OUTCOME: Entrepreneur presents his case and investor says I like your business – so, lets circle back in couple of months.

WHAT THE INVESTOR REALLY MEANT IS: The investor actually likes the entrepreneur but its too early for him to cut a check as the business model is yet to fleshed out.

WHAT THE ENTREPRENEUR SHOULD DO: The entrepreneur should ask the investor what would make him invest in his startup. Take notes from that meeting and see if there’s a fit between what he wants from that investor and what the investor brings to the table. If there’s a fit, keep the investor updated about the progress while taking feedback and help along the way. Then at an appropriate time, “make the ask”.

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SCENARIO #2Entrepreneur reaches out to an investor for an investment in his idea/startup.

MOST LIKELY OUTCOME: Investor ignores.

WHAT THE INVESTOR REALLY MEANT IS: The investor gets tons of email per day. And he believes in the process of elimination than selection. So a cold email is no good for an investment.

WHAT THE ENTREPRENEUR SHOULD DO: The entrepreneur should look for an immediate middleman who can connect you two; ideally the middleman should be an entrepreneur where the investor had put in money with a net positive exit in the past. The entrepreneur shouldn’t take introduction from folks like common lawyers, accountants etc.

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SCENARIO #3Entrepreneur gets introduced by a common party to an investor or vice-versa for an investment possibility. 

MOST LIKELY OUTCOME: Investor ignores if its a common lawyers. Responds if its from an entrepreneur whom he had invested in the past; better still if the entrepreneur had given him positive return in the past.

WHAT THE INVESTOR REALLY MEANT IS: The response from the investor means that “now you’ve got my attention due to Mr X. Now please present your case”.

WHAT THE ENTREPRENEUR SHOULD DO: The entrepreneur should do exactly what I mentioned in scenario #1.

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Now since we are done with the usual pleasantries, let try to get inside an investor’s brain.

  • Investors are primarily two kinds in India. One is a career investor and the other a venture capitalist. A career investor puts money from his own pocket as he’s passionate about startups, ideas and want to help an entrepreneur; hoping that his help can fetch returns in the future. While venture capitalist (VC), invests someone else’s money.
  • Career investors are more prompt to take a quick decision to invest; hence they invest early as angel investors with small check sizes hoping that the business grows to scale with VC’s to come in with larger check sizes which might make way for a handsome exit since in India there aren’t many exits in the last 10 years. So history is against entrepreneurs.
  • Early stage investment is supposed to be risk-capital. But due to non-existence of lucrative exits routes, investment thesis follows business models which are safe and dependable as it can give better returns.
  • Investors follow herd-mentality. What that means is investment in early stage is more gut-driven than science. Science comes in at later stage where VC’s are involved. So entrepreneurs should find a hack around this little fact.
  • Investors love traction. What traction means for early stage startups is not absolute numbers but certain key metric(s), not the vanilla ones moving up-to-the-north.
  • Also note, that averagely a well-known investor gets around 100+ emails everyday related to new investments, previous investments, past investments etc.
  • Investors hate long emails (primarily due to the deluge of emails they get everyday). Any email, especially introductory ones with more than 250 words is like death nail to the coffin. Keep it short and simple like “my startup does X for Y with Z customers over N period growing at XX%“.
  • Finally, investors are the not the most smartest beings on earth to judge about your business. You are. They mostly follow history. However, we think otherwise and in the process do not present our case well enough to sell it to the investors.

I wanted to write this piece to tell a story about two sides of the same coin. Above writing is from my last 5 years experience in raising money across India, US, Europe for 4 different business models. Hope my experience helps you!

Final departing note: Raising money is an art which can be mastered by science.

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