8 Keys for Startups to Find the Best Investors

In the past two years, the relationship between entrepreneurs and investors has been: sometimes they are harmonious, and sometimes they are at odds with each other. Some investors come out to educate entrepreneurs to be aware of current affairs, while others criticize entrepreneurs for fraud; some entrepreneurs come out to scold "dishonest" investors, and some even come out to educate the entire investment community to behave properly.

In my opinion, investment and financing must be viewed with the most sober eye. Investment can be said to be the most emotionless thing in the world. I like to read Wang Gongquan's story very much, of course not (just) because of his tragic elopement, but because he is a sentimental seed and a man of temperament. When it comes to investment, he treats things one way and never acts capriciously or romantically. The most classic part is that after reading Chen Nian's autobiography, he cried and was deeply moved. Then, he withdrew the investment he was going to make in Chen Nian because reason told him that Chen Nian had flaws as a leader of the company.

Investors must be absolutely rational in looking at projects. Even if they cannot do it themselves, LPs will ask them to do it. As entrepreneurs, you must always remind yourself that investors are money-making machines, not life mentors or saviors.

Of course, a life mentor is also a very good PR method. In fact, investors are also qualified because they have invested in enough projects and various vivid cases of success and failure can indeed give them enough insights. However, being a life mentor while providing guidance is completely different from whether he will use money to save you from trouble.

The professionalism of investors is reflected in their efforts to earn more profits for LPs and themselves, and any means that are not illegal may be used in the process. You have no way to stop them, and scolding them is useless. Only by taking adequate precautions can you reduce the chance of getting hurt. The following are some typical ways of getting hurt:

1. Participate in projects to obtain company confidential data

I have personally witnessed such a story, an investor was about to resign to start his own business, before leaving the investment institution, he frequently met with entrepreneurs in the field, through communication with them, fully understood the various key elements, models and ideas in the industry, and even took the opportunity to find some good industry talents to prepare for the needs of starting a business. For such a situation, it can be said that it is difficult to guard against.

2. Reneging on the price after committing to an investment

I have heard of many such examples. An investment institution has signed a term sheet with Project A, and Founder A still has some money in hand. He began to happily carry out various projects to spend money, preparing to make great efforts when the funds come in. When most of the money was spent, the investor told him that the project was strongly opposed when it was approved for 1234 reasons, especially the first reason that the risk was very high and the future valuation might not be as high as originally thought. The Investment Committee advocated that it could not invest. After his efforts, the valuation had to be reduced by 1/3 if it was to be invested. Founder A was naturally very angry. Considering that his cash flow was relatively good, he gritted his teeth and stomped his feet and rejected the investment change. Of course, in return, he had to borrow money everywhere to fill the hole during the Spring Festival. Founder B, who had a similar experience, had to accept the new investment plan because the financing progress was delayed for too long and the cash flow was tight, but it laid the groundwork for the subsequent cooperation conflict.

3. Failure to fulfill investment commitments

Even more serious than the above situation is that the investor directly notifies you that they will not invest. There are usually two reasons for this. First, the investor's money supply is really cut off. The recent stock market crash has directly led to many LPs cutting their positions, so the fund has to make large-scale adjustments. An investment manager we know said that the company cut all of his project teams, so he had to find a new job.

The second is that the investor has found similar projects with better conditions than yours through industry research, and the attraction of that project is so great that he would rather bear the bad reputation. In addition, there are also immature investment institutions that do not want to invest for no reason after completing the DD and signing the agreement. This is a very unprofessional practice, which should not happen in theory. We call such institutions "industry bad coins." What makes entrepreneurs even more upset is that some investors will say that I have decided to invest in you, sign an exclusive agreement, and you don't need to contact other investors, just run the business with peace of mind, and don't be distracted. But in the end, not only did they not invest, but they also dragged down the entrepreneurs. So every year, some entrepreneurs who really can't swallow this breath come out to complain, but it's useless.

4. Kick out the founder

After the money is in place, investors and founders often disagree with each other in the process of working together. Didn't our great Mr. Steve Jobs get kicked out of the company? NVC Lighting also caused a sensation because of the fierce quarrel between the founder and the investor. When this happens, entrepreneurs should not only stick to their own opinions, but also listen more, communicate more, facts speak louder than words, take small steps, and constantly correct mistakes.

8 Tips:

Entrepreneurship is a process of accelerating learning and spiraling upward, which requires both entrepreneurs and investors to maintain an open and grateful attitude. I had an in-depth discussion with Mr. Lu Jiakai, a partner of Chunxiao Capital, on how entrepreneurs can avoid being hurt in the process of financing. He gave the following suggestions:

1. Before interviewing with investors, you should first conduct a background check on the investment institution. It is best to communicate with investment institutions that have 0 to 1 successful entrepreneurial experience. Those who only know some inspirational stories, success studies, and so-called knowledgeable life mentors are all misleading people.

2. A team that thinks it will be at a disadvantage in competition just because of data or technology leakage is not worth investing in. Entrepreneurship is full of thorns and there is no smooth road. The treacherous business world is like a battlefield. You have to fight back against any enemy and block any attack. A fully competitive market is so cruel that you must be able to withstand the test. In today's information-based entrepreneurial environment, only strong enough strategy and execution can bring you competitiveness. Other things are not worth worrying about.

3. The only reason investors give up investing is that you are not worth betting on. Investors manage LP assets and maximize profits, which is also a path to entrepreneurship. Entrepreneurs stand from their own perspective and only see one side. Little do they know that investors need to listen to all sides and keep an eye on all directions. The way they consider problems is complex and diverse. In the face of exaggerated data and unconventional models, the process of separating the true from the false is a physical job for investors, and the factors they need to consider are far greater than those of entrepreneurs.

4. Good projects are scarce. If an investor is not enthusiastic about you and ignores you after the talk, don’t waste your time on such an investor. Business requires focus, and financing discussions also require focus to maximize benefits.

5. If you are worried that the investor may not keep his promise, you can ask for more protective clauses before signing the agreement, such as bridge loans, non-exclusive regulations (multiple institutions can conduct due diligence), cancellation of the VAM, etc. If you really have no investment experience, it is recommended that you hire a professional and reliable FA team to avoid many pitfalls.

6. For a mature entrepreneur, emotional intelligence is more important than IQ. If the financing has reached the point where both parties are in love, before obtaining the marriage certificate, you should have sufficient communication with the investor, exchange resources and move forward together. You must let the investor feel the rapid development of the business and the combat effectiveness of the team. You must believe that with a sexy enough team, the investor will pounce on you like a hungry wolf, and can't wait to enter the bridal chamber as soon as possible.

7. Financing should not only focus on money and valuation. Financing should be a combination of funds and resources. Unique and scarce resources may be battle supplies that money cannot buy for the entrepreneurial team. The standard for weighing the pros and cons should be whether it can ensure that they can maintain a continuous advantage in the fierce competition environment.

8. A mature investment institution should know how to manage post-investment better. Investment is also a job where emotional intelligence is more important than IQ. It requires choosing the right team, sufficient trust and communication, reliable strategic resource supply, and the willingness to accept defeat. In addition, when facing a good project, whether an investor can successfully grab it also depends on whether he is sexy and attractive enough. Money is not omnipotent. Blindly driving up prices will only "bad money drives out good money", which will inevitably cause bubbles and be detrimental to the overall market.

When the cold wind blows, the relationship between entrepreneurs and investors becomes more delicate, and entrepreneurs who are in urgent need of financing may be more vulnerable. Entrepreneurship itself is a highly complex matter, requiring emotional intelligence and IQ, ability and tenacity, mastering one's core competitiveness, grasping cash flow, and paying attention to the setting of equity structure are several key points. I hope the above analysis can give you more complete information. If you need more help, please contact us and we will grow together.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.