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This article was published on April 7, 2013

5 ways to advance your term sheet: AKA “How to think like an investor”

5 ways to advance your term sheet: AKA “How to think like an investor”
Esther Loewy
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Esther Loewy

Esther Loewy is Founding Partner at Bootcamp Ventures. Esther has advised on brand awareness and investment strategies for companies such as Esther Loewy is Founding Partner at Bootcamp Ventures. Esther has advised on brand awareness and investment strategies for companies such as, Power Paper and Alvarion. She holds an MBA from the Kellogg School of Management and is a member of the Experiential Marketing Forum's international advisory board.

My daily work consists of connecting innovative A round startups with potential investors or strategic partners. One thing I repeatedly see are on the one hand, talented entrepreneurs frustrated by the failed attempts of securing funding for their startups and on the other hand, investors often shaking their heads that entrepreneurs haven’t fully explained their value proposition. The five suggestions below are designed to help facilitate the investment process which may lead to a more expeditious term sheet and teach entrepreneurs to think more like an investor.

1. Go For The Money NOW

Seek funding precisely when you don’t need it. We often hear the entrepreneur say, whether in Tel Aviv, Istanbul or Berlin, “we’re doing ok now, so we’ll wait…just closed some business deals, or secured another internal angel round.” Yet this is the time when you will be most in demand by investors. You will more likely be in the drivers’ seat on valuation, thus control when your company is not actively seeking additional investments. Perhaps it’s the time to connect with a corporate or strategic investor who can open doors to new clients. Therefore, it is imperative to understand that when you least need funding investors will acknowledge how their capital can move the needle way up and help you accelerate faster.

2. Do Their Due Diligence.

Investors will rightfully want to drill down on the market opportunity comparables by understanding how big an opportunity your startup is. Don’t wait for them to do their research since this may take time. Send them relevant market research, news articles on competitors who were funded, and emphasize your unique differentiator. Keep in mind, the more you lay out on the table for them, the more they will understand and acknowledge your business proposition. Indeed, they will appreciate that you know your business cold, are both a visionary and a pragmatist and can deliver on your promises.

3. Forget the Rockstar; Focus on the Entire Band.

One- man shows don’t make a great company. As often as the mantra is quoted “we invest in great teams”, we still see occasional lone rangers who insist on running the entire show to the point of arrogance, which turns off an investor. In fact, we engaged a leading US investor who gave an initial terms sheet to a very promising startup with a ‘rockstar CEO’, to then retract the $1.5 million agreement based on the CEO’s arrogance.

4. Show Them the Exit!

Your startup has established traction, recruited a great team, built a unique product, the market appears receptive – now show the investors where the exit is. Will a strategic player acquire you because they need your solution? Who might those companies be? What similar exits were there in the market? How big do you think your startup will grow? Set a limit. As the venerable investor Alan Patricof once pronounced at one of our Innovation Xchange conferences: “most exits will be under $100 million, and that’s okay.” If you own up to it, realize it- you will know which investor’s appetite to wet.

5. Humble Pie+Confidence.

This is tough naturally. (Why else would you choose to be an entrepreneur?) Yet knowing and understanding just how much to push while exuding the right amount of confidence and patience is a combination of art, science and black magic – yet will make all the difference. Investors are skeptical towards businesses that appear as over-eager and presumptuous. Before throwing numbers and figures out in terms of how much funding you are seeking or the billion dollar opportunity, focus on your addressable market, identify your go-to-market and sales strategies and show how you will exceed expectations. Build the confidence – be assertive but leave the ego at the door. Investors are your long-term partners and will recognize companies which clearly demonstrate exponential growth and stand out from the pack.

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