Using the Power of Influence to Entice A Venture Capital Investor to Invest in Your Business
The majority of investors would rather keep their money than trust their money to someone else so what does it take to convince an investor to invest?
On the basis that investors start from a position of No when asked to invest what can you do to influence that decision (assuming that all of the business basics stack up)?
You Can Harness the 6 Universal Principles of Influence. They Are:
First: Reciprocation. People give back to you the kind of treatment that they have received from you.
Treat the potential investor with respect. Do some research on them, find out what they like, what they have invested in previously, what causes they support and if possible what their values are.
Second: Scarcity. People will try to seize the opportunities that you offer them that are rare or dwindling in availability.
You might have a position available on the Board for an appropriate investor. Maybe you are looking for a limited number of investors and you only have one or two positions left.
Third: Authority. People will be most persuaded by you when they see you as having knowledge and credibility on the topic.
Preparation is the key. You need to know your product. Your marketplace. Your competition - yes you will always have competition - if you think that you don't you have not done your market research well enough.
Fourth: Commitment. People will feel a need to comply with your request if it is consistent with what they have publicly committed themselves to in your presence.
Remember that presenting to an investor is no different than making a sale of your product to a prospective client. You need to identify what the investor is looking for, ask them if they are prepared to invest if all of those concerns are met, then show how your business or investment opportunity meets or exceeds each of the identified items. If you can do that you have eliminated all of their concerns regarding investment with respect to your business, so it comes down to the fifth point.
Fifth: Liking. People prefer to say yes to your request to the degree that they know and like you.
Remember the golden rule. Investors invest in people more specifically investors invest in the team. Venture Capitalists have been quoted as saying they would rather invest in a B class product and an A class management team than an A class product with a B class management team.
Getting an investor to invest is like a courtship. You are planning to have a long term relationship with this person so it is important to understand what they are looking for and it is important for you to communicate your plans to them. Not necessarily at the first meeting but certainly before the actual investment is made.
Consequently you need to start meeting potential investors, business angels and Venture Capitalists long before you actually need the investment. So get networking.
Lastly: Consensus. People will be likely to say yes to your request if you give them evidence that people just like them have been saying yes to it.
It is easier to get the second investor than the first. Second round funding is usually easier to fill than first round funding. This means that you need to identify other businesses and/or investments that are similar to yours, perhaps in another marketplace or geographic location which have received investment funding.
Alternatively or in addition to the above you need to have a strong board. If investors see that you have been able to attract a strong board then those people are making an investment of time, energy, effort and knowledge and that meets the consensus requirement even if the contribution is in a different form.
Often it is easier to get people to become members of your board in the early stages than it is to get funding, therefore it is worth focusing on that in the early stages. This has the effect of preparing your business to be attractive to investment at a later stage, expanding your businesses network meeting the fifth requirement, demonstrating that you and others are showing commitment - the forth requirement.
Where do you start? Start applying the principles in your everyday life, your business and then when you do start interacting with investors these will come naturally to you, thereby positioning you and your business or investment opportunity it its best possible light to Entice and Investor to Invest.
