Editor's note: This article written by Amy Rees Anderson originally appeared on Forbes.com and is being reprinted with her permission.
While I have been an entrepreneur for more than 20 years of my life, I have been an angel investor for less than one. As such, I have a pretty unique position of still being able to understand exactly how entrepreneurs feel, while now sitting on the other side of the table negotiating against them as the investor.
Filling this new role at this time in my career is somewhat comparable to being that 20- or 30-something young parent who is still cool enough to remember what it is like to be the teenager, but now has to play the role of the grown-up who sets and enforces rules. You feel a bit like a little kid in a grown-up’s life.
I can empathize completely with the angst these entrepreneurs are experiencing as they have put everything on the line and are just trying to make it. But at the same time, I know that, as an investor, I must play the part of setting expectations and enforcing fair valuations. I decided I would tap into my “still-cool-enough-to remember” side in this column and try to give the best advice I can to those entrepreneurs who are trying to win over an investor.
When you meet with an investor, you have to learn to be optimistic in a uniquely realistic kind of way. Realistic is painful for entrepreneurs because it feels like they are saying they don’t believe in themselves or their idea. They tend to be constantly in “everything-is-going-to-be awesome” mode, especially when they are presenting to a potential investor. Herein lies the problem: That investor is about to take their own hard-earned money and they are going to gamble that money on one thing and one thing only — trusting the entrepreneur.
Sure, the idea matters, as do market size, revenues and costs. But more important than any of those factors is the person in charge. A fantastic leader with a poor concept will somehow find a way to make that endeavor a success, but a poor leader with the best concept will almost always result in a failure. The investor is paying as much attention to the entrepreneur as an individual as they are to the idea; they are looking for an entrepreneur they can trust. Thus, the way the entrepreneur presents his or her idea will either inspire trust or destroy it.
Let’s put this into perspective with a familiar scenario: Imagine a teenager taking his parent’s car out for a drive by himself for the very first time. The teenager comes to parent and says, “I’ve got this. No problem. Don’t freak. It’s all going to be fine.” The parent’s first reaction is: “Oh my goodness, they are going to total my car and end up dead or in jail.”
Now let’s try a different approach. The teenager comes to the parent and says, “I want you to know that I realize that driving a car is a huge responsibility, and one that requires serious attention to my own driving as well as the driving of others around me. I know that despite my training, the fact is that there will be unforeseen circumstances that could arise during my trip. While I don’t expect anything bad to happen, I have thought through how I would handle any difficulties that could arise and have prepared myself with emergency supplies, flares and jumper cablesy. I also realize that you have a right to worry about me, and I will do what I can to communicate throughout the night so that you don’t have to wonder whether or not I am OK and on schedule to arrive home safely.”
Now, if there were a teenager who actually said that to his parents, I am quite certain the heavens would part and choirs of angels would be singing the Hallelujah Chorus. Imagine how good the parent would feel about trusting the child who approached it that way. They were also responsible enough to admit that life doesn’t always go as planned, and they wthought through those “what ifs” in order to be prepared should the need arise. Note that the action being contemplated was the same in both scenarios — the parent was handing their keys over to the teenager, but it was the teenager’s approach to asking for those keys that made all the difference in inspiring the trust from the parent.
So, entrepreneurs, as you prepare to meet with investors, remember to present your idea like the teenager from the second scenario. Go in with an optimistic attitude about your idea, but don’t wait for the investor to start poking holes in your presentation with all the “what ifs.” Instead, take the lead and before they can ask, tell them that while you don’t anticipate problems, you have certainly considered all possibilities that might arise, and you have made the best preparations possible to be ready to handle them if they should occur. And don’t be afraid to offer a few “flares” and “jumper cables” to prove you have thought it through.
When you finish explaining this to the investor, be sure to listen for the choir of heavenly angels to start singing, because chances are — they will.
Amy Rees Anderson is the Founder and Managing Partner of REES Capital, a Mentoring and Angel Investing Firm. Contact her at firstname.lastname@example.org or follow her daily blog at www.amyreesanderson.com/blog
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